Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV), 80448-80460 [2022-28316]

Download as PDF 80448 Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations Dated: December 26, 2022. J.B. Gunning, Captain, U.S. Coast Guard, Captain of the Port Sector Corpus Christi. [FR Doc. 2022–28471 Filed 12–29–22; 8:45 am] BILLING CODE 9110–04–P LIBRARY OF CONGRESS Copyright Royalty Board 37 CFR Part 385 [Docket No. 21–CRB–0001–PR (2023–2027)] Determination of Royalty Rates and Terms for Making and Distributing Phonorecords (Phonorecords IV) Copyright Royalty Board, Library of Congress. ACTION: Final rule. AGENCY: The Copyright Royalty Judges publish final regulations that set rates and terms applicable during the period from January 1, 2023 through December 31, 2027, for the statutory license for making and distributing phonorecords of nondramatic musical works. DATES: Effective date: January 1, 2023. Applicability date: These rates and terms are applicable during the period from January 1, 2023 through December 31, 2027. FOR FURTHER INFORMATION CONTACT: Anita Brown, Program Specialist, (202) 707–7658, crb@loc.gov. SUPPLEMENTARY INFORMATION: SUMMARY: khammond on DSKJM1Z7X2PROD with RULES Background On August 31, 2022, the Copyright Royalty Judges (Judges) 1 received a motion stating that several participants, (Settling Parties),2 had reached a partial settlement (Settlement) regarding the rates and terms under section 115 of the Copyright Act, namely, for Licensed Activity (as defined in 37 CFR part 385, subpart A 3) presently addressed in 1 The Copyright Royalty Judges as an institution are occasionally referenced herein as the Copyright Royalty Board (CRB). 2 The participants who filed the motion are the National Music Publishers’ Association (NMPA) and Nashville Songwriters Association International (NSAI, and collectively with NMPA, the Copyright Owners), on the one hand, and the music services, Amazon.com Services LLC, Apple Inc., Google LLC, Pandora Media, LLC, and Spotify USA Inc. (collectively, Service Participants) on the other hand. 3 The definition of ‘‘licensed activity,’’ as the term is used in subparts C and D of 37 CFR part 385, means the delivery of musical works, under voluntary or statutory license, via Digital Phonorecord Deliveries in connection with Interactive Eligible Streams, Eligible Limited Downloads, Limited Offerings, mixed Bundles, and Locker Services. (37 CFR 385.2). VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 subparts C & D of 37 CFR part 385 together with certain regulations of general application (e.g., definitions and late fee provisions) applicable to the subpart C & D Configurations presently addressed in 37 CFR part 385, subpart A, for the 2023–2027 rate period 4 and seeking approval of that partial settlement. See Motion to Adopt Settlement of Statutory Royalty Rates and Terms for Subpart C and D Configurations, Docket No. 21–CRB– 0001–PR (2023–2027) at 1 (eCRB 27222) 5 (Motion). The Settling Parties state that ‘‘the settlement [ ] represents the consensus of both licensees and licensors representing the vast majority of the market for rights under section 115 for Subpart C & D Configurations.’’ 6 Motion at 3. On September 26, 2022, the Judges issued ‘‘Order 63 to File Certification or Provide Settlement Agreements’’ (eCRB 27253) (Order 63), which ordered the Settling Parties to certify that the Motion and the Proposed Regulations annexed to the Motion represent the full agreement of the Settling Parties, i.e., that there are no other related agreements and no other clauses. Order 63 further ordered that if such other agreements or clauses exist, the Settling Parties shall file them. On September 26, 2022, the Settling Parties filed a ‘‘Joint Response to George Johnson’s Motion to Compel Production of Settlement and CRB Order 63’’ (eCRB 27257) (Joint Response).7 Portions of the Joint Response, which were submitted as Restricted, are responsive to Order 63. On October 6, 2022, the Settling Parties filed a ‘‘Joint Submission of Settling Participants Regarding Settlement Agreement’’ (eCRB 27278) (Joint Submission) which removed the Restricted designation to the ‘‘Settlement Agreement’’ attached as Exhibit A to the Joint Submission. However, the Joint Response and the Joint Submission did not completely and adequately respond to Order 63. 4 The Motion refers to the rate period as ‘‘the full time period addressed by the Proceeding.’’ Motion at 1. 5 eCRB reference numbers may be used to access relevant documents through the Copyright Royalty Board website. 6 The Settling Parties indicate that participant George Johnson does not agree to the settlement and that participants David Powell and Brian Zisk should be dismissed because they did not file a Written Direct Statement. Motion at 3 and n. 1. Mr. Johnson filed an opposition to the motion (eCRB. No. 27239) on September 6 which the Judges consider relevant to this proposed rule. 7 George Johnson’s ‘‘Corrected Motion to Compel Parties to Immediately Submit Actual Signed Proposed Settlement Agreement for Subpart C with Any MOUs or Side Deals here in Phonorecords IV’’ was filed on September 20, 2022. (eCRB 27249). PO 00000 Frm 00016 Fmt 4700 Sfmt 4700 On October 3, 2022, Google and NMPA filed ‘‘Google and NMPA’s Joint Notice of Lodging’’ (eCRB 27275) (Joint Notice of Lodging), which indicated that those two parties found Order 63 unclear regarding what is meant by ‘‘related agreements.’’ Google and NMPA offered that they broadly construed Order 63’s reference to ‘‘related agreements’’ to include certain letter agreements executed between Google, on the one hand, and certain music publishers and the NMPA, on the other hand, on or around the execution date of the settlement agreement. Google and NMPA indicated they will ‘‘lodge’’ such letter agreements concurrently with their Joint Notice of Lodging. Google and NMPA also indicated that they do not believe that the letter agreements are substantively related to the Settlement, and that the letter agreements simply concern Google’s allocation practices to avoid double payments arising from certain direct agreements. On October 7, 2022, Google and NMPA submitted ‘‘Google and NMPA’s Joint Notice of Public Lodging’’ which included public versions of letter agreements. (eCRB 27279). On October 17, 2022, the Judges issued ‘‘Order 64 to File Settlement Agreements and Provide Certification’’ (eCRB 27284) (Order 64), which clarified the scope of Order 63 and ordered the Settling Parties to: (1) file (not ‘‘lodge’’) any supplemental written agreements between Service Participants, on the one hand, and Copyright Owners and/or their affiliates, including copyright owners that they represented in this proceeding, on the other hand, that represent consideration for, or are contractually related to, the Settlement referenced in the Motion. (2) file a detailed description of any supplemental oral agreements between Service Participants, on the one hand, and Copyright Owners and/or their affiliates, including copyright owners that they represented in this proceeding, on the other hand, that represent consideration for, or are contractually related to the Settlement referenced in the Motion, through a certification or certifications from individuals with direct knowledge of any such supplemental oral agreements. (3) file a certification or certifications from a person or persons with first-hand knowledge stating that there are no other agreements, written or oral, beyond the Settlement, the Settlement Agreement and the filed supplemental written or oral agreements responsive to this order. (4) explain in a supplemental brief why the remaining restricted portions of the Joint Response, apart from Exhibit A, from which the Restricted designation has been removed, would, if disclosed, interfere with the ability of the Producer to obtain like information in the future. E:\FR\FM\30DER1.SGM 30DER1 khammond on DSKJM1Z7X2PROD with RULES Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations On October 26, 2022, the Settling Parties filed a ‘‘Joint Response to Order 64’’ (eCRB 27290) (Joint Response 2). In response to item #1 above, Joint Response 2 noted that the October 6, 2022, Joint Submission removed the Restricted designation to the ‘‘Settlement Agreement’’ and attached it within Exhibit A to Joint Response 2. In Joint Response 2, Google and NMPA also filed the aforementioned letter agreements as Exhibit B to Joint Submission 2.8 Joint Response 2 also included the Settling Parties’ representation that other than the Settlement Agreement itself, there are no other agreements responsive to Order 64. In response to item #2 above, Joint Response 2 stated that there are no supplemental oral agreements responsive to Order 64. In response to item #3 above, Joint Response 2 included Exhibits C–1 through C–7, certifications from a representative of each of the Settling Parties with first-hand knowledge of the Settlement Agreement and negotiations, which collectively attest that there are no other agreements, written or oral, responsive to Order 64 beyond the agreements provided as part of Joint Response 2. In response to item #4 above, Joint Response 2 noted that the Settling Parties do not believe that there is any reason why any restricted portions of the Joint Response need to remain restricted. Therefore, the Settling Parties filed, concurrently with Joint Response 2, a revised version of the Joint Response that removes all redactions, entitled ‘‘[Revised to Remove Redactions] Joint Response to George Johnson’s Motion to Compel Production of Settlement and CRB Order 63.’’ (eCRB 27289) (Revised Joint Response). The Settling Parties offered that through Joint Response 2, and the related submissions referenced therein, the Judges have all materials necessary to publish the proposed rates and terms for public comment. The Settling Parties noted the necessary public comment and objection period, as well as potential consequences to the industry if rates and terms are not effective in time to be operationalized for the beginning of 2023, and therefore request that the Judges publish the proposed rates and terms for public comment as 8 Joint Response 2 reiterated Google and NMPA’s view that the letter agreements are not substantively related to the Settlement, and that the letter agreements simply concern Google’s allocation practices to avoid double payments arising from certain direct agreements. VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 soon as possible.9 Proposed regulations implementing the Settlement are attached to Joint Response 2. On November 7, 2022, the Judges published the Settlement in the Federal Register and requested comments from the public. 87 FR 66976 (Nov. 7, 2022). Comments were due by December 7, 2022. The Judges received 20 comments from interested parties.10 One participant, George Johnson (GEO) filed two comments opposing Settlement 2.11 Statutory Standard and Precedent Pursuant to section 801(b)(7)(A) of the Copyright Act, the Judges have the authority to adopt settlements between some or all of the participants to a proceeding at any time during a proceeding. This section states that the Judges shall: (1) provide an opportunity to comment on the agreement to nonparticipants who would be bound by the terms, rates, or other determination set by the agreement; and (2) provide an opportunity to comment and to object to participants in the proceeding who would be bound by the terms, rates, or other determination set by the agreement. See section 801(b)(7)(A). The 9 The Judges are aware of the participants’ and the public’s interest in timely implementation of rates and terms, and note that the submission of partial agreements, and related materials as restricted, has been a source of unfortunate delay in consideration of the proposed settlement of statutory royalty rates and terms for subpart C and D configurations. 10 Word Collections’ Eric Goldberg (eCRB 27370); Word Collections’ Jeff Price (eCRB 27369); Black Music Action Coalition (BMAC) and Music Artists Coalition (MAC) (eCRB 27369); Songwriters of North America (SONA) (eCRB 27367); The Recording Academy (eCRB 27365); The Music Publishers Association of the United States (MPA) (eCRB 27364); Eugene ‘‘Lambchops’’ Curry (eCRB 27357); Songwriters Guild of America, Inc. (SGA), Society of Composers & Lyricists (SCL), and Music Creators North America (MCNA), and the individual music creators Rick Carnes and Ashley Irwin (together Independent Music Creators) (eCRB 27358); Helienne Lindvall, David Lowery and Blake Morgan (together Writers) (eCRB 27356); Abby North (eCRB 27355); Gwendolyn Seale (eCRB 27354); Austin Texas Musicians (eCRB 27353); Michelle Shocked (eCRB 27352);; The Association of Independent Music Publishers (AIMP) (eCRB 27349); Production Music Association (PMA) (eCRB 27340); Ross Golan (eCRB 27336); William Evans (eCRB 27333); The 100 Percenters (eCRB 27329); and The Church Music Publishers Association of the United States (CMPA) (eCRB 27326); and Upward Bound Music Company (eCRB 27317). 11 On September 6, 2022, before the Judges published the Settlement for comment, GEO filed a Response in Opposition to the Subpart C Proposed Settlement (eCRB 27239) (GEO Opposition). On November 7, 2022, after the Judges published the Settlement for comment, GEO filed Comments and Second Response in Opposition to the Subpart C Proposed Settlement in Phonorecords IV (eCRB 27371) (GEO Second Opposition), which objects to adoption of the Settlement and included in an Exhibit GEO’s prior Response in Opposition to the Subpart C Proposed Settlement. GEO also states his desire to join (entirely or partially) with several commenters that oppose aspects of the Settlement. PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 80449 Judges may decline to adopt the agreement as a basis for statutory terms and rates for participants not party to the agreement if any participant objects and the Judges conclude that the agreement does not provide a reasonable basis for setting statutory terms or rates. Id. Regardless of the comments of interested parties or participants, the Judges are not compelled to adopt a settlement to the extent it includes provisions that are inconsistent with the statutory license. See Review of Copyright Royalty Judges Determination, 74 FR 4537, 4540 (Jan. 26, 2009) (error for Judges to adopt settlement without threshold determination of legality); see also Review of Copyright Royalty Judges Determination, 73 FR 9143, 9146 (Feb. 19, 2008) (error not to set separate rates as required under sections 112 and 114 when parties’ unopposed settlement combined rates in contravention of those statutory sections).12 As the Register of Copyrights (Register) observed in the 2009 review of the Judges’ decision, nothing in the statute precludes rejection of any portions of a settlement that would be contrary to provisions of the applicable license or otherwise contrary to the statute. 74 FR 4540. In the instance under review by the Register, the settlement agreement purported to alter the date(s) for payment of royalties granting licensees a longer period than section 115 provided. Id. at 4542. The Register also noted that nothing in the statute relating to adoption of settlements precludes the Judges from considering comments of nonparticipants ‘‘which argue that proposed [settlement] provisions are contrary to statutory law.’’ Id. at 4540. Summary of Non-Participant Comments The comments of interested parties in this proceeding overlapped in significant aspects and are summarized as follows. Comments in Support The following commenters all express support for adoption of the Settlement. Black Music Action Coalition (BMAC) and Music Artists Coalition (MAC); Songwriters of North America (SONA); The Recording Academy; The Music Publishers Association of the United 12 The Register found that a ‘‘paucity of evidence’’ in the record to support a determination of separate rates for the separate licenses ‘‘does not dispatch the . . . Judges’ statutory obligations.’’ Review of Copyright Royalty Judges Determination, 73 FR 9143, 9145 (Feb. 19, 2008). The Register noted that the Judges have subpoena power to compel witnesses to appear and give testimony. Id. E:\FR\FM\30DER1.SGM 30DER1 80450 Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations khammond on DSKJM1Z7X2PROD with RULES States (MPA); The Association of Independent Music Publishers (AIMP); Production Music Association (PMA); Ross Golan; The 100 Percenters; and The Church Music Publishers Association of the United States (CMPA). These commenters express generally positive assessment of the Settlement. However, several of these comments, while supportive of adoption of the Settlement, take issue with the current extent of regulation of musical works and with aspects of the rate setting process, which are beyond the scope of the Judges’ consideration of the Settlement. Comments in Opposition Word Collections’ Eric Goldberg offers a series of comparisons of historical mechanical per play rates to the growth in 115 licensed music services’ Subscriber Counts, Service Revenue, and Total Content Costs (‘‘meaning the amount paid to labels for sound recording rights’’). Mr. Goldberg also presents predictions of mechanical per play rates over the Phonorecords IV rate period under the terms of the Settlement. His analysis is intended to support his view that, as a matter of equity, the headline rates (applicable to service revenue) should be increased further to give songwriters parity with the music services and record labels who depend upon the songwriters’ creative works of authorship. Word Collections’ Eric Goldberg at 1–6. Word Collections’ Jeff Price reiterates aspects of the comment from Word Collections’ Eric Goldberg, advancing the notion that any increase realized by songwriters and musical work owners under the settlement would not keep pace with the cost of living, inflation, or with the benefits realized by music services or sound recording copyright owners. Mr. Price offers that a headline rate of 25% combined with the elimination of several deductions from attributable revenue would properly compensate songwriters and copyright owners. Word Collections’ Jeff Price at 6–7. Mr. Price states that his comment is intended to provide information to the Judges regarding the NMPA and who it represents when taking into consideration the proposed Settlement. Mr. Price offers that NMPA represents less than 2% of U.S. (and rest of the world) music publishers and suggests that NMPA’s interests are not aligned with 98% of music publishers. Mr. Price goes on to indicate that major labels, Sony, Universal and Warner, control equity positions in music services, and that these three entities own and/or VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 control the major record labels, the associated sound recordings, the major music publishers, and the associated musical composition copyrights. Mr. Price offers that the intertwined relationships create conflicts of interest. Specifically, Mr. Price points to conflicts of interests that were noted in relationship to a prior proposed settlement in this proceeding, and a suggested conflict of interest in relationship to SoundExchange (the designated collective for royalties under specific statutory licenses for sound recordings). Word Collections’ Jeff Price at 1–2. Mr. Price suggests that the NMPA and or its members have self-negotiated to some degree to determine what musical work copyright owners should be paid in the future. Word Collections’ Jeff Price at 2. Mr. Price then addresses issues surrounding the scope or availability of the section 115 license, in relation to certain licensees, suggesting that in the future there may be an informative and robust market for willing buyer willing seller negotiations for mechanical. Id. at 2–6. Songwriters Guild of America, Inc. (SGA), Society of Composers & Lyricists (SCL), and Music Creators North America (MCNA), and the individual music creators Rick Carnes and Ashley Irwin (together Independent Music Creators) 13 comment in opposition, asking the Judges to modify or reject the Settlement in its present form as a necessity for providing economic justice for music creators. Independent Music Creators at 2. Independent Music Creators opine that the Settlement represents insufficient and unreasonable limited increases in streaming rates over the next five years, especially in light of anticipated inflation. Id. at 10. Independent Music Creators acknowledge that the Settlement includes elements other than a headline percentage of revenue, and that these other elements, such as the total content cost (TCC) component and fixed per subscriber elements, have increased far more than the headline rate. However, Independent Music Creators criticize these details as complex ancillary terms, which lack plain language explanations. Furthermore, Independent Music Creators offer that the possibility of increases in licensees’ subscription 13 The Independent Music Creators’ state that their comments are endorsed by Alliance for Women Film Composers (AWFC), Screen Composers Guild of Canada (SCGC), Songwriters Association of Canada (SAC), Asia-Pacific Music Creators Alliance (APMA), Music Answers (M.A.), Fair Trade Music International (FTMI), Pan-African Composers and Songwriters Alliance (PACSA), and Alliance of Latin American Composers & Authors (AlcaMusica). PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 revenue that may positively impact mechanical royalties under the settlement, or offset inflationary losses, are at best speculative and at worst specious. Id. at 12. They instead voice preference for an approach based on cost of living adjustment principles, including what they offer as a necessary application of cost of living adjustments to royalty pools within the existing greater than/lesser of rate structure. Id. Independent Music Creators warn of conflicts and complications surrounding the streaming royalty rate negotiations, and potential self-dealing. They offer their suspicion that major music publisher-affiliated record companies exercised undue influence on the Settlement. Id. at 14. Independent Music Creators criticize music publishers’ silence regarding the traditional ratio of label versus publisher share of revenue, and point to the opinions of Merck Mercuriadis, an executive at the music publisher, Hipgnosis, that major music publishers are not free to do what’s in the best interests of their constituency, because they’re owned and controlled by their respective major recorded music companies. Id. at 15. Ultimately, Independent Music Creators do not indicate that specific undue influence or conflicts of interest impacted the Settlement but suggest that the possibility raises questions as to whether the Settlement can reliably be shown to have been arrived at with adequate and unconflicted representation of music creator and publisher interests, and whether the results reached following such negotiations are reasonable. Id. at 17. Independent Music Creators also urge that the Judges address (1) whether the Settling Parties should be required to explain in plain language how their streaming royalty rate settlement terms will avoid catastrophic losses in value due to inflation over the next five years; (2) whether a cost of living adjustment provision is warranted, as such provisions have been included in several other recently negotiated rate agreements approved by the CRB, and; (3) whether the proposed settlement agreement was negotiated with adequate and unconflicted representation of music creator and publisher interests, leading to results that provide a reliably reasonable basis for the setting of fair and equitable statutory streaming rates and terms. Id. at 18. Songwriters Helienne Lindvall, David Lowery, and Blake Morgan (Writers) 14 support the Settlement as far as it goes 14 Writers’ comment was submitted by Christian L. Castle as Counsel. E:\FR\FM\30DER1.SGM 30DER1 khammond on DSKJM1Z7X2PROD with RULES Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations but with some reservations. Writers at 1. Writers express concern that inflation may diminish the rates for copyright owners. They argue that the lack of a cost of living adjustment within the rate structure is wrong and arbitrary, particularly since they do not perceive any justification has been given. Writers dispute the view that because copyright owners receive a share of revenue from the statutory licensees that increasing revenue from increases in subscription prices or number of subscribers will accrue to copyright owners benefit. They argue that a cost of living adjustment would provide more effective protection against inflation. Writers suggest that the Judges could add a new step in the proposed settlements regulations, where a cost of living adjustment would be applied after the per work royalty allocation is determined. Id. at 5–7. Writers posit that the rate calculation formula in the Settlement is unduly complex. While Writers acknowledge some compelling reasons as to why complexity developed, they refer to the calculation of streaming mechanicals set forth in the Settlement as mindnumbing in complexity. They go on to allege that the complexity is nonsensical. Id. at 8–11.15 Writers then address late fees, which they deem similar to credit card interest. They argue that late fees should be treated as an additional royalty payment under any publishing agreement. Otherwise, the Writers allege, a late fee might be treated as a catalog-wide penalty and that a copyright owner collecting the late fee could argue should be retained for its own account, without attribution to specific works or songwriters. Id. at 12. Writers argue for the clarification of the ‘‘overtime adjustment’’ language such that the long-song adjustment is a bonus and not a penalty. They cite to the version of section 115 that was in force prior to the enactment of the MMA for the principle that copyright owners should not bear the cost of the long song bonus through a reduction in the statutory rates that may otherwise be applicable to songs that fall below the overtime adjustment. Id. at 13–15. Writers request that the Judges address the possibility that the Settlement would allow licensees to include activity in the denominator (in step 4) that should not be there (such as podcasts or spoken word recordings). They offer that once such undue plays are included in that denominator it is 15 Writers also take issue with a number of procedures in CRB proceedings, which are beyond the scope consideration of the settlement at issue. VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 very difficult to remove these nonroyalty bearing tracks and restate all earnings. Id. at 15–16. Abby North expresses some favorable views toward the settlement, but offers her criticism of the delays in the final implementation of rate setting proceedings, in the current proceeding and others. She takes issue with the lack of transparency regarding to submissions related to the Settlement and resulting delays. Abby North at 1. Ms. North states that the section 115 rates and terms must include a cost of living adjustment and that the Settling Parties should agree to including such adjustments. She disputes that music services’ subscription prices and number of subscribers would provide an organic cost of living adjustment. Id. at 2. Gwendolyn Seale, a music lawyer who represents songwriters, offers comments on her own behalf opposing the settlement. Ms. Seale takes issue with adoption of the Settlement as it would thwart application of the willing buyer, willing seller rate setting standard that would have been applied in a determination made by the Judges absent settlement. Gwendolyn Seale at 2–3. She also alleges that the Settlement is unduly complex and results in troubling trends in resulting the per play allocations. Id at 3–4. Ms. Seale suggests that while the Judges may not be able to fix the rate formula, the Judges should integrate a cost of living adjustment to be applied to the ‘‘payable royalty pool.’’ She suggests adding a cost of living adjustment at the end-result following all of the greater and lesser of calculations and the removal of the performance royalties from the ‘‘all-in royalty pool.’’ Id. at 5. Ms. Seale also takes issue with several procedures and delays occurring within the proceeding process. Id at 3, 5–6. Michelle Shocked submits comments that ‘‘agree with Participant George Johnson’s September 6, 2022 objections for the same following reasons.’’ Michelle Shocked at 1–4. Those objections from George Johnson are set forth in the next section below. In addition, Ms. Shocked raises issues about certain music services’ alleged lack of compliance with the section 115 license and other alleged piracy of her works. Id. at 4–6. Austin Texas Musicians request that the Judges include a cost of living adjustment. Austin Texas Musicians at 1. Eugene ‘‘Lambchops’’ Curry, William Evans and Upward Bound Music Company do not pointedly address the Settlement, but instead propose various alternative rates ranging from 0.12 cent PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 80451 per stream to $3.00 per stream. Eugene Curry at 1–2; William Evans at 1; Upward Bound at 1–3. Mr. Johnson’s Opposition to the Settlement Proceeding participant George Johnson (GEO) objects to the Settlement in part because, in his view, it suffers from the same issues that the Judges found to be a basis for their March 30, 2022 withdrawal and refusal to adopt another proposed settlement, namely that a) the settlement has no inflation adjustment for what he deems to be a static rate; b) it suffers from same selfdealing and conflicts of interest concerns; and c) the settlement may possibly be related to an undisclosed side deal. GEO Second Opposition at 15. While GEO refers to the Settlement offer as the bare minimum, he also asserts that the 15.35% percent of revenue element within the Settlement for 2027 is too low, and that 20% to 25% would be a reasonable percent of revenue element. GEO Second Opposition at 29, 13. GEO maintains that the 15.1% percent of revenue element within the Settlement for 2023 is not an increase in value, and that the 15.1% to 15.35% percent of revenue elements for the rate period is essentially a static rate, which GEO indicates is in tension with the Judges’ March 30, 2022 withdrawal and refusal to adopt another proposed settlement. Id. GEO questions why neither the percent of revenue element nor the persubscriber elements are indexed for inflation, suggesting that is also in tension with the Judges’ March 30, 2022 decision. Id. GEO expresses concern that adoption of the Settlement may thwart application of the willing buyer, willing seller rate setting standard that would have been applied in a determination made by the Judges absent settlement. Id. at 14. GEO also includes several broad criticisms regarding value realized by investors in affected businesses as well as the salaries of executives at such businesses. Id. at 15. He adds accusations of price fixing and antitrust concerns across the music business. Id. at 16. GEO suggests that the Settlement does not adequately account for revenue that licensees may realize through their sale of data and advertising. Id. GEO alleges that Google and NMPA’s Joint Notice of Public Lodging, filed to update their response to Order 63 to File Certification or Provide Settlement Agreements, shows that ‘‘the 3 record labels’’ are using direct licenses for themselves with music services while using the CRB process to price-fix all of E:\FR\FM\30DER1.SGM 30DER1 80452 Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations their competitors. Id. at 17–18, 20–21. GEO suggests that major publishers’ direct licenses reflect different rates and terms than the statutory rates proposed in the Settlement. He also claims that non-disclosure agreements prevent anyone from knowing the rates and terms in those direct licenses. Id. at 18. GEO attempts to compare the Settlement to a vaguely referenced direct deal involving Sony from 2011, covering unspecified rights with an unknown party, which apparently is not in the record of this proceeding. GEO’s cryptic reference to a 2011 deal for unspecified rights is apparently meant to suggest that there might be additional undisclosed consideration in relation to the Settlement. Id. at 19–20. GEO also includes alternative rate proposals and urges the Judges to abolish what he refers to as a ‘‘free limited download loophole’’ or a ‘‘free and unlimited limited downloads loophole.’’ Id at 2, 3. GEO further addresses this matter as an element within his WDS which proposes to plug the free and unlimited limited downloads loophole. Id. at 2, 11–15.16 Judges’ Analysis and Conclusions khammond on DSKJM1Z7X2PROD with RULES Chapter 8 of the Copyright Act encourages parties to enter into settlement negotiations, ultimately the decision as to whether a contested settlement should be approved on motion is subject to the Judges’ discretion, informed by the submissions of the Settling Parties and the commenters, and by the Judges’ application of the law to the facts. Section 801(b)(7)(A) is clear that the Judges have the authority to adopt settlements between some or all of the participants to a proceeding at any time during a proceeding, so long the relevant parties are given an opportunity to comment and object. 17 U.S.C. 801(b)(7)(A). The Judges may decline to adopt the agreement as a basis for statutory terms and rates for participants not party to the agreement 16 GEO’s opposition to the ‘‘free and unlimited limited downloads loophole’’ may, on its face, appear somewhat vague. However, GEO’s proposal appears to relate to an issue and proposal raised more precisely in Copyright Owners’ WDS, intended to close a hole in the terms that could be seen as leaving some uses without a rate. Restricted Downloads have been defined as any downloads that are not permanent, including Eligible Limited Downloads. However, past regulations (and seemingly those set forth in the Settlement) do not provide a rate for Restricted Downloads. Copyright Owners’ WDS proposed revising the definitions to maintain the allowance for zero rate Restricted Downloads solely in connection with Purchased Content Locker Services and set a rate for other Restricted Downloads equal to the penny rate for Permanent Downloads. Copyright Owners WDS at 23–24. VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 if any participant objects and the Judges conclude that the agreement does not provide a reasonable basis for setting statutory terms or rates. Id. at 801(b)(7)(A). The Judges provided the requisite opportunity for comment and received GEO’s opposition as well as the abovenoted comments for and against the Settlement. Having considered these submissions in their entirety, the Judges find no persuasive legal or economic arguments that convince the Judges to reject the proposed settlement reached voluntarily between the Settling Parties. Only one participant in this proceeding, GEO, objected to the Settlement. As shown by the foregoing synopsis, however, GEO’s objections did not come to the Judges in a vacuum. The statute requires publication of a settlement proposal and solicitation of comments from interested parties— parties who would be bound by the proposed rates and terms. Interested parties’ comments are filed in the record of the proceeding and the Judges analyze those comments even though the Judges do not base rejection of a settlement solely on negative comments from non-participants. From the perspective of some independent songwriters and copyright owners, the proposed rates might seem inadequate. The Judges recognize that several commenters proposed alternative rates that they prefer, including alternative methods for inserting inflation adjustments. However, while the Judges may decline to adopt a settlement, the Judges are not empowered to modify the Settlement, such as by adding requested adjustments. The Settlement is what is before the Judges for consideration, not alternative rates or proposals for alternative procedures.17 The Judges specifically recognize that some comments take issue with existing aspects of participation in rate proceedings before the Judges.18 Additionally, the present settlement consideration process is not the forum to fully consider and address matters involving statements of account,19 an 17 Concerns about enforcement of infringement of licensable works or eligibility for the section 115 license are also outside the scope of the consideration of the Settlement. 18 Certain of the procedural issues raised by commenters have been addressed in part through a recent response to an inquiry from the Senate Judiciary Committee. See, https://www.crb.gov/ docs/CRB-Response-2022-11-25-Letter-to-SenatorsFINAL.pdf. 19 Absent specific briefing in relation to any requested clarification or correction, the Judges interpret the regulations to clarify that Plays in the denominator (in step 4) is limited to Covered Activity, as used in the regulatory definitions and references to the term as defined section 115(e)(7). PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 area which the U. S, Copyright Office and the Judges share an interest.20 While there may be dispute as to the extent to which the Copyright Owners as Settling Parties represent the copyright owner community overall, the Judges accept that the Copyright Owners have an interest in the vast majority of the uses of rights under section 115 for Subpart C & D Configurations. Furthermore, the Judges accept that the proposed rates and terms were negotiated on behalf of the vast majority of parties that historically have participated in section 115 proceedings before the Judges. The Settling Parties clearly concluded that the rates and terms were acceptable to both sides. Furthermore, as addressed below, the negotiations occurred absent several of the aspects that led the Judges to refuse to adopt a separate proposed settlement. The facts and analysis that led the Judges to conclude that another proposed settlement in this proceeding did not provide a reasonable basis for setting statutory rates and terms are distinguishable from those surrounding the Settlement before them now. In the current consideration of the Settlement, the mechanical rates represent an increase from prior rates across significant steps of the rate setting formula, including the headline rate applicable to service revenue, the percentage of Total Content Costs, and fixed per subscriber elements within the Settlement, e.g. Royalty Floors. In other words, the rates do not remain unchanged. They are not frozen, despite the fact that they retain a rate structure, that some do not favor. The Judges clarify that they do not consider the structure of the Settlement to be unreasonable, and that they have found similar structure appropriate in other proceedings. While some songwriters or copyright owners may be confused by the royalties or statements of account, the price discriminatory structure and the associated levels of rates in settlement do not appear gratuitous, but rather designed, after negotiations, to establish a structure that may expand the revenues and royalties to the benefit of copyright owners and music services alike, while also protecting copyright owners from potential revenue diminution. This approach and the resulting rate setting formula is not unreasonable. Indeed, when the market 20 The Judges specifically find that the application and allocation of the overtime adjustment and late fees as set forth in the Settlement is not unreasonable. The Judges further observe that allocation of late fees may be addressed through the contracts between songwriters and their publishers. E:\FR\FM\30DER1.SGM 30DER1 khammond on DSKJM1Z7X2PROD with RULES Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations itself is complex, it is unsurprising that the regulatory provisions would resemble the complex terms in a commercial agreement negotiated in such a setting. For the Judges to demand simplicity in this context would be to sacrifice the specificity that an effectively competitive market requires. The Judges also observe that one of the benefits of a collective entity (the MLC in this case) is that it possesses the expertise and resources to identify and explain how royalties are computed and distributed. In the current consideration of the Settlement, the Judges ordered disclosure of relevant supplemental agreements. The Judges took appropriate steps to ensure that such agreements have been properly revealed to the Judges and to the public. This is an important distinction from the Judges’ consideration a settlement where related agreements were hidden or opaque.21 The issue of potential conflicts of interest remains to some degree, as some publishers represented by NMPA have cross ownership relationships with record labels, some of which have or had equity interests with music services. However, as the Judges have repeatedly observed, conflicts are inherent if not inevitable in the existing composition of certain negotiating parties. No party opposing the Settlement has presented persuasive evidence of misconduct or conduct that would sufficiently indicate that rates or terms are inconsistent with those that would be set in an effectively competitive market. The corporate relationships alone do not suffice as probative evidence of wrongdoing or of rates or terms that are inconsistent with the performance of an effectively competitive market. Indeed, the Judges have observed zealous advocacy throughout the proceeding, which has appeared to affect the settlement, thus mitigating the effect of any possible collusion such as suggested in the comments and the objection. The Judges, therefore, do not find that present alleged conflicts present sufficient reason to doubt the reasonableness of the settlement at issue as a basis for setting statutory rates and terms. The Judges do not conclude that the Settlement agreement, reached voluntarily between the Settling Parties, fails to provide a reasonable basis for setting statutory terms and rates for 21 As the Judges have noted, the submission of partial agreements, and related materials as restricted, has been a source of unfortunate delay in consideration of the proposed settlement of statutory royalty rates and terms for subpart C and D configurations. VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 licensing nondramatic musical works to manufacture and distribute phonorecords. The entirety of the record before the Judges, including the arguments GEO and other commenters presented, is insufficient for the Judges to determine that the agreed rates and terms are unreasonable. In making this finding, the Judges are not indicating that arguments for differing approaches to address inflation in the Settlement are entirely without merit. However, the Judges find some of the proposals for cost of living adjustments advanced in the comments to be questionable. In short, the Judges do not find it unreasonable, in this case, for the Settlement to not include yearly adjustments for inflation. In making this finding, the Judges observe the broad increases within the Settlement, including the headline percentage rate applicable to Service Revenue, the percentage of Total Content Costs, and each of the fixed per subscriber elements. The Judges find that the structure and increases are a reasonable approach to providing an organic cost of living adjustment. The Judges also observe that agreements such as the Settlement are arrived upon in part to avoid costly and uncertain litigation, which would involve a number of disputed issues. Securing specific inflation adjustments is but one of several provisions that may be bargained for, and treatment of that issue is bound-up with the entirety of the parties’ negotiated compromises. In this context, the Judges find no persuasive reason to determine that the absence of yearly inflation adjustments is unreasonable or should otherwise justify a rejection of the Settlement. The Judges also note that while the willing buyer willing seller standard was not expressly applied as it would be in a full proceeding, the operable rate standard exists as a relevant factor surrounding the Settlement. The Judges also reviewed the Settlement with regard to whether any portions would be contrary to provisions of the applicable license or otherwise contrary to the statute, pursuant to the Register’s prior rulings. See, e.g., Review of Copyright Royalty Judges Determination, 74 FR 4537, 4540 (Jan 26, 2009). Upon such review, the Judges see no basis to conclude that the Settlement is contrary to law. Therefore, the Judges adopt the proposed regulations that codify the Settlement.22 22 The Judges observe that GEO appears to have requested a rate setting for activity that may not be addressed in the Settlement, which he describes as an ‘‘unlimited limited download.’’ The Judges intend to request additional briefing from the PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 80453 The Judges adopt the proposed rates and terms industry-wide for Subparts C and D Configurations. List of Subjects in 37 CFR Part 385 Copyright, Phonorecords, Recordings. For the reasons set forth in the preamble, the Copyright Royalty Judges amend 37 CFR part 385 as follows: PART 385—RATES AND TERMS FOR USE OF NONDRAMATIC MUSICAL WORKS IN THE MAKING AND DISTRIBUTING OF PHYSICAL AND DIGITAL PHONORECORDS 1. The authority citation for part 385 continues to read as follows: ■ Authority: 17 U.S.C. 115, 801(b)(1), 804(b)(4). ■ 2. Revise subpart A to read as follows: Subpart A—Regulations of General Application Sec. 385.1 General. 385.2 Definitions. 385.3 Late payments. 385.4 Recordkeeping for promotional or free trial non-royalty-bearing uses. § 385.1 General. (a) Scope. This part establishes rates and terms of royalty payments for the use of nondramatic musical works in making and distributing of physical and digital phonorecords in accordance with the provisions of 17 U.S.C. 115. This subpart contains regulations of general application to the making and distributing of phonorecords subject to the section 115 license. (b) Legal compliance. Licensees relying on the compulsory license detailed in 17 U.S.C. 115 shall comply with the requirements of that section, the rates and terms of this part, and any other applicable regulations. This part describes rates and terms for the compulsory license only. (c) Interpretation. This part is intended only to set rates and terms for situations in which the exclusive rights of a Copyright Owner are implicated and a compulsory license pursuant to 17 U.S.C. 115 is obtained. Neither this part nor the act of obtaining a license under 17 U.S.C. 115 is intended to express or imply any conclusion as to the circumstances in which a user must obtain a compulsory license pursuant to 17 U.S.C. 115. (d) Relationship to voluntary agreements. The rates and terms of any license agreements entered into by Copyright Owners and Licensees Participants as to whether and how this proceeding may address such activity. E:\FR\FM\30DER1.SGM 30DER1 80454 Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations relating to use of musical works within the scope of those license agreements shall apply in lieu of the rates and terms of this part. khammond on DSKJM1Z7X2PROD with RULES § 385.2 Definitions. Unless otherwise specified, capitalized terms in this part shall have the same meaning given to them in 17 U.S.C. 115(e). For the purposes of this part, the following definitions apply: Accounting Period means the monthly period specified in 17 U.S.C. 115(c)(2)(I) and in 17 U.S.C. 115(d)(4)(A)(i), and any related regulations, as applicable. Active Subscriber means an End User of a Bundled Subscription Offering who has made at least one Play during the Accounting Period. Affiliate means an entity controlling, controlled by, or under common control with another entity, except that an affiliate of a Sound Recording Company shall not include a Copyright Owner to the extent it is engaging in business as to musical works. Artificial Accounts are accounts that are disabled or terminated for having engaged in User Manipulation or other fraudulent activity and for which any subscription revenues are refunded or otherwise not received by the Service Provider. Bundle means a combination of a Subscription Offering providing Eligible Interactive Streams and/or Eligible Limited Downloads and one or more other products or services having more than token value, purchased by End Users in a single transaction (e.g., where End Users make a single payment without separate pricing for the Subscription Offering component). Bundled Subscription Offering means a Subscription Offering providing Eligible Interactive Streams and/or Eligible Limited Downloads included within a Bundle. Copyright Owner(s) are nondramatic musical works copyright owners who are entitled to royalty payments made under this part pursuant to the compulsory license under 17 U.S.C. 115. Digital Phonorecord Delivery has the same meaning as in 17 U.S.C. 115(e)(10). Eligible Interactive Stream means a Stream that is an Interactive Stream as defined in 17 U.S.C. 115(e)(13). Eligible Limited Download means a Limited Download as defined in 17 U.S.C. 115(e)(16) that is only accessible for listening for— (1) An amount of time not to exceed one month from the time of the transmission (unless the Licensee, in lieu of retransmitting the same sound recording as another Eligible Limited VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 Download, separately, and upon specific request of the End User made through a live network connection, reauthorizes use for another time period not to exceed one month), or in the case of a subscription plan, a period of time following the end of the applicable subscription no longer than a subscription renewal period or three months, whichever is shorter; or (2) A number of times not to exceed 12 (unless the Licensee, in lieu of retransmitting the same sound recording as another Eligible Limited Download, separately, and upon specific request of the End User made through a live network connection, reauthorizes use of another series of 12 or fewer plays), or in the case of a subscription transmission, 12 times after the end of the applicable subscription. End User means each unique person that: (1) Pays a subscription fee for an Offering during the relevant Accounting Period; or (2) Makes at least one Play during the relevant Accounting Period. Family Plan means a discounted Subscription Offering to be shared by up to six members of the same family or household for a single subscription price. Free Trial Offering means a subscription to a Service Provider’s transmissions of sound recordings embodying musical works when— (1) Neither the Service Provider, the Sound Recording Company, the Copyright Owner, nor any person or entity acting on behalf of or in lieu of any of them receives any monetary consideration for the Offering; (2) The usage does not exceed 45 days per subscriber per one-year period, which days may be nonconsecutive; (3) In connection with the Offering, the Service Provider complies with the recordkeeping requirements in § 385.4 or superseding Copyright Office recordkeeping requirements; (4) The Free Trial Offering is made available to the End User free of any charge; and (5) The Service Provider offers the End User periodically during the trial an opportunity to subscribe to, and/or autorenews the End User into, a non-Free Trial Offering of the Service Provider. GAAP means U.S. Generally Accepted Accounting Principles in effect at the relevant time, except that if the U.S. Securities and Exchange Commission permits or requires entities with securities that are publicly traded in the U.S. to employ International Financial Reporting Standards in lieu of Generally Accepted Accounting Principles, then that entity may employ International PO 00000 Frm 00022 Fmt 4700 Sfmt 4700 Financial Reporting Standards as ‘‘GAAP’’ for purposes of this subpart. Licensee means any entity availing itself of the compulsory license under 17 U.S.C. 115 to use copyrighted musical works in the making or distributing of physical or digital phonorecords. Licensed Activity as the term is used in subparts C and D of this part, means Covered Activity, under voluntary or statutory license, in the form of Eligible Interactive Streams, Eligible Limited Downloads, and Restricted Downloads. Locker Service means an Offering providing digital access to sound recordings of musical works in the form of Eligible Interactive Streams, Permanent Downloads, Restricted Downloads or Ringtones where the Service Provider has reasonably determined that the End User has purchased or is otherwise in possession of the subject phonorecords of the applicable sound recording prior to the End User’s first request to use the sound recording via the Locker Service. The term Locker Service does not mean any part of a Service Provider’s products otherwise meeting this definition, but as to which the Service Provider has not obtained a section 115 license. Mixed Service Bundle means an Offering providing Licensed Activity consisting of Eligible Interactive Streams or Eligible Limited Downloads that meets all of the following criteria: (1) The Offering is made available to End Users only in combination (i.e., the Offering is not available on a standalone basis) with one or more products or services (including services subject to other subparts) of more than token value as part of one transaction for which End Users make a payment without receiving pricing for the Offering separate from the product(s) or service(s) with which it is made available. (2) The Offering is made available by a Service Provider that also offers End Users a separate, standalone Subscription Offering. (3) The Offering offers End Users less functionality relative to that separate, standalone Subscription Offering. Such lesser functionality may include, but is not limited to, limitations on the ability of End Users to choose to listen to specific sound recordings on request or a limited catalog of sound recordings. (4) Where an Offering could qualify or be considered as either a Bundled Subscription Offering or a Mixed Service Bundle, such Offering shall be deemed a Mixed Service Bundle for the purpose of calculating and paying royalties under subpart C of this part. E:\FR\FM\30DER1.SGM 30DER1 khammond on DSKJM1Z7X2PROD with RULES Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations Music Bundle means two or more of physical phonorecords, Permanent Downloads or Ringtones delivered as part of one transaction (e.g., download plus ringtone, CD plus downloads). In the case of Music Bundles containing one or more physical phonorecords, the Service Provider must sell the physical phonorecord component of the Music Bundle under a single catalog number, and the musical works embodied in the Digital Phonorecord Delivery configurations in the Music Bundle must be the same as, or a subset of, the musical works embodied in the physical phonorecords; provided that when the Music Bundle contains a set of Digital Phonorecord Deliveries sold by the same Sound Recording Company under substantially the same title as the physical phonorecord (e.g., a corresponding digital album), the Service Provider may include in the same bundle up to 5 sound recordings of musical works that are included in the stand-alone version of the set of digital phonorecord deliveries but not included on the physical phonorecord. In addition, the Service Provider must permanently part with possession of the physical phonorecord or phonorecords it sells as part of the Music Bundle. In the case of Music Bundles composed solely of digital phonorecord deliveries, the number of digital phonorecord deliveries in either configuration cannot exceed 20, and the musical works embodied in each configuration in the Music Bundle must be the same as, or a subset of, the musical works embodied in the configuration containing the most musical works. Offering means a Service Provider’s engagement in Licensed Activity covered by subparts C and D of this part. Paid Locker Service means a Locker Service for which the End User pays a fee to the Service Provider. Performance Royalty means the license fee payable for the right to perform publicly musical works in any of the forms covered by subparts C and D this part. Permanent Download has the same meaning as in 17 U.S.C. 115(e)(24). Play means an Eligible Interactive Stream, or a play of an Eligible Limited Download, lasting 30 seconds or more and, if a track lasts in its entirety under 30 seconds, an Eligible Interactive Stream or a play of an Eligible Limited Download of the entire duration of the track. A Play excludes an Eligible Interactive Stream or a play of an Eligible Limited Download caused by User Manipulation. Promotional Offering means a digital transmission of a sound recording, in the form of an Eligible Interactive VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 Stream or an Eligible Limited Download, embodying a musical work, the primary purpose of which is to promote the sale or other paid use of that sound recording or to promote the artist performing on that sound recording and not to promote or suggest promotion or endorsement of any other good or service and (1) A Sound Recording Company is lawfully distributing the sound recording through established retail channels or, if the sound recording is not yet released, the Sound Recording Company has a good faith intention to lawfully distribute the sound recording or a different version of the sound recording embodying the same musical work; (2) The Service Provider is in compliance with the recordkeeping requirements of § 385.4 or superseding Copyright Office recordkeeping requirements; (3) For Eligible Interactive Streams of segments of sound recordings not exceeding 90 seconds, the Sound Recording Company delivers or authorizes delivery of the segments for promotional purposes and neither the Service Provider nor the Sound Recording Company creates or uses a segment of a sound recording in violation of 17 U.S.C. 106(2) or 115(a)(2); (4) The Promotional Offering is made available to an End User free of any charge; and (5) The Service Provider provides to the End User at the same time as the Promotional Offering Stream an opportunity to purchase the sound recording or the Service Provider periodically offers End Users the opportunity to subscribe to a paid Offering of the Service Provider. Purchased Content Locker Service means a Locker Service made available to End User purchasers of Permanent Downloads, Ringtones, or physical phonorecords at no incremental charge above the otherwise applicable purchase price of the Permanent Downloads, Ringtones, or physical phonorecords acquired from a qualifying seller. With a Purchased Content Locker Service, an End User may receive one or more additional phonorecords of the purchased sound recordings of musical works in the form of Permanent Downloads or Ringtones at the time of purchase, or subsequently have digital access to the purchased sound recordings of musical works in the form of Eligible Interactive Streams, additional Permanent Downloads, Restricted Downloads, or Ringtones. (1) A qualifying seller for purposes of this definition is the entity operating the PO 00000 Frm 00023 Fmt 4700 Sfmt 4700 80455 Service Provider, including Affiliates, predecessors, or successors in interest, or— (2) In the case of Permanent Downloads or Ringtones, a seller having a legitimate connection to the locker service provider pursuant to one or more written agreements (including that the Purchased Content Locker Service and Permanent Downloads or Ringtones are offered through the same third party); or (3) In the case of physical phonorecords: (i) The seller of the physical phonorecord has an agreement with the Purchased Content Locker Service provider establishing an integrated offer that creates a consumer experience commensurate with having the same Service Provider both sell the physical phonorecord and offer the integrated locker service; or (ii) The Service Provider has an agreement with the entity offering the Purchased Content Locker Service establishing an integrated offer that creates a consumer experience commensurate with having the same Service Provider both sell the physical phonorecord and offer the integrated locker service. Relevant Page means an electronic display (for example, a web page or screen) from which a Service Provider’s Offering consisting of Eligible Interactive Streams or Eligible Limited Downloads is directly available to End Users, but only when the Offering and content directly relating to the Offering (e.g., an image of the artist, information about the artist or album, reviews, credits, and music player controls) comprises 75% or more of the space on that display, excluding any space occupied by advertising. An Offering is directly available to End Users from a page if End Users can receive sound recordings of musical works (in most cases this will be the page on which the Eligible Limited Download or Eligible Interactive Stream takes place). Restricted Download means a Digital Phonorecord Delivery in a form that cannot be retained and replayed on a permanent basis. The term Restricted Download includes an Eligible Limited Download. Ringtone means a phonorecord of a part of a musical work distributed as a Digital Phonorecord Delivery in a format to be made resident on a telecommunications device for use to announce the reception of an incoming telephone call or other communication or message or to alert the receiver to the fact that there is a communication or message. E:\FR\FM\30DER1.SGM 30DER1 khammond on DSKJM1Z7X2PROD with RULES 80456 Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations Service Provider means that entity governed by subparts C and D of this part, which might or might not be the Licensee, that with respect to the section 115 license. (1) Contracts with or has a direct relationship with End Users or otherwise controls the content made available to End Users; (2) Is able to report fully on Service Provider Revenue from the provision of musical works embodied in phonorecords to the public, and to the extent applicable, verify Service Provider Revenue through an audit; and (3) Is able to report fully on its usage of musical works, or procure such reporting and, to the extent applicable, verify usage through an audit. Service Provider Revenue. (1) Subject to paragraphs (2) through (5) of this definition and subject to GAAP, Service Provider Revenue shall mean, for each Offering subject to subpart C of this part: (i) All revenue from End Users recognized by a Service Provider for the provision of the Offering; (ii) All revenue recognized by a Service Provider by way of sponsorship and commissions as a result of the inclusion of third-party ‘‘in-stream’’ or ‘‘in-download’’ advertising as part of the Offering, i.e., advertising placed immediately at the start or end of, or during the actual delivery of, a musical work, by way of Eligible Interactive Streams or Eligible Limited Downloads; and (iii) All revenue recognized by the Service Provider, including by way of sponsorship and commissions, as a result of the placement of third-party advertising on a Relevant Page of the Service Provider or on any page that directly follows a Relevant Page leading up to and including the Eligible Limited Download or Eligible Interactive Stream of a musical work; provided that, in case more than one Offering is available to End Users from a Relevant Page, any advertising revenue shall be allocated between or among the Service Providers on the basis of the relative amounts of the page they occupy. (2) Service Provider Revenue shall: (i) Include revenue recognized by the Service Provider, or by any associate, Affiliate, agent, or representative of the Service Provider in lieu of its being recognized by the Service Provider; and (ii) Include the value of any barter or other nonmonetary consideration; and (iii) Except as expressly detailed in this part, not be subject to any other deduction or set-off other than refunds to End Users for Offerings that the End Users were unable to use because of technical faults in the Offering or other bona fide refunds or credits issued to VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 End Users in the ordinary course of business. (3) Service Provider Revenue shall exclude revenue derived by the Service Provider solely in connection with activities other than Offering(s), whereas advertising or sponsorship revenue derived in connection with any Offering(s) shall be treated as provided in paragraphs (1), (2) and (4) of this definition. (4) For purposes of paragraph (1) of this definition, advertising or sponsorship revenue shall be reduced by the actual cost of obtaining that revenue, not to exceed 15%. (5) In instances in which a Service Provider provides a Bundled Subscription Offering to End Users, the revenue from End Users deemed to be recognized by the Service Provider for the Offering for the purpose of paragraph (1) of this definition of Service Provider Revenue shall be as follows: (i) For Bundled Subscription Offerings where both (a) each component of the Bundle is a product or service of the Service Provider (including Affiliates) and (b) the Service Provider (including Affiliates) makes the Bundle available to End Users directly, then the revenue from End Users deemed to be recognized by the Service Provider for the purpose of paragraph (1) of this definition shall be the aggregate of the retail price paid for the Bundle (i.e., all components for one retail price) multiplied by a fraction where the numerator is the standalone retail price of the Subscription Offering component in the Bundle and the denominator is the sum of the standalone retail prices of each of the components in the Bundle (e.g., if a Service Provider sells the Subscription Offering component on a standalone basis for $10/month and a separate product and/or service on a standalone basis for $5/month, then the fraction shall be $10 divided by $15, i.e., 2⁄3, resulting in Service Provider Revenue of $8,000 if the aggregate of the retail price paid for the Bundle is $12,000). (ii) For Bundled Subscription Offerings where either one or more components of the Bundle are not products or services of the Service Provider (including Affiliates) or the Service Provider (including Affiliates) does not make the Bundle available to End Users directly, then the revenue from End Users deemed to be recognized by the Service Provider for the purpose of paragraph (1) of this definition shall be the revenue recognized by the Service Provider from the Bundle multiplied by a fraction where the numerator is the standalone PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 retail price of the Subscription Offering component in the Bundle and the denominator is the sum of the standalone retail prices of each of the components of the Bundle. Notwithstanding the preceding sentence, where the Service Provider does not recognize revenue for one or more components of the Bundle, then the standalone price(s) of the component(s) for which revenue is not recognized shall not be included in the calculation of the denominator of the fraction described in this sub-paragraph (e.g., where a Bundle of three services, each with a standalone price of $20/ month, sells for $50/month, and the Service Provider recognizes $30,000 of revenue from the provision of only two of those services, one of which is a Subscription Offering, then the fraction shall be $20 divided by $40, i.e., 1⁄2, resulting in Service Provider Revenue of $15,000). (iii) For the calculations in paragraphs (5)(i) and (ii) of this definition, in the event that there is no standalone published price for a component of the Bundle, then the Service Provider shall use the average standalone published price for End Users for the most closely comparable product or service in the U.S. or, if more than one comparable exists, the average of standalone prices for comparables. If no reasonably comparable product or service exists in the U.S., then the Service Provider may use another good faith, reasonable measure of the market value of the component. Sound Recording Company means a person or entity that: (1) Is a copyright owner of a sound recording embodying a musical work; (2) In the case of a sound recording of a musical work fixed before February 15, 1972, has rights to the sound recording, under chapter 14 of title 17, United States Code, that are equivalent to the rights of a copyright owner of a sound recording of a musical work under title 17, United States Code; (3) Is an exclusive Licensee of the rights to reproduce and distribute a sound recording of a musical work; or (4) Performs the functions of marketing and authorizing the distribution of a sound recording of a musical work under its own label, under the authority of a person identified in paragraph (1) through (3). Standalone Limited Offering means a Subscription Offering providing Eligible Interactive Streams or Eligible Limited Downloads for which— (1) An End User cannot choose to listen to a particular sound recording (i.e., the Service Provider does not provide Eligible Interactive Streams of E:\FR\FM\30DER1.SGM 30DER1 khammond on DSKJM1Z7X2PROD with RULES Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations individual recordings that are ondemand, and Eligible Limited Downloads are rendered only as part of programs rather than as individual recordings that are on-demand); or (2) The particular sound recordings available to the End User over a period of time are substantially limited relative to Service Providers in the marketplace providing access to a comprehensive catalog of recordings (e.g., a product limited to a particular genre or permitting Eligible Interactive Streams only from a monthly playlist consisting of a limited set of recordings). Standalone Non-Portable Subscription Offering—Streaming Only means a Subscription Offering through which an End User can listen to sound recordings only in the form of Eligible Interactive Streams and only from a non-portable device to which those Eligible Interactive Streams are originally transmitted while the device has a live network connection. Standalone Non-Portable Subscription Offering—Mixed means a Subscription Offering through which an End User can listen to sound recordings either in the form of Eligible Interactive Streams or Eligible Limited Downloads but only from a non-portable device to which those Eligible Interactive Streams or Eligible Limited Downloads are originally transmitted. Standalone Portable Subscription Offering means a Subscription Offering through which an End User can listen to sound recordings in the form of Eligible Interactive Streams or Eligible Limited Downloads from a portable device. Stream means the digital transmission of a sound recording of a musical work to an End User— (1) To allow the End User to listen to the sound recording, while maintaining a live network connection to the transmitting service, substantially at the time of transmission, except to the extent that the sound recording remains accessible for future listening from a Streaming Cache Reproduction; (2) Using technology that is designed such that the sound recording does not remain accessible for future listening, except to the extent that the sound recording remains accessible for future listening from a Streaming Cache Reproduction; and (3) That is subject to licensing as a public performance of the musical work. Streaming Cache Reproduction means a reproduction of a sound recording embodying a musical work made on a computer or other receiving device by a Service Provider solely for the purpose of permitting an End User who has previously received a Stream of that VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 sound recording to play the sound recording again from local storage on the computer or other device rather than by means of a transmission; provided that the End User is only able to do so while maintaining a live network connection to the Service Provider, and the reproduction is encrypted or otherwise protected consistent with prevailing industry standards to prevent it from being played in any other manner or on any device other than the computer or other device on which it was originally made. Student Plan means a discounted Subscription Offering available on a limited basis to students. Subscription Offering means an Offering for which End Users are required to pay a fee to have access to the Offering for defined subscription periods of 3 years or less (in contrast to, for example, a service where the basic charge to users is a payment per download or per play), whether the End User makes payment for access to the Offering on a standalone basis or as part of a Bundle. TCC means the total amount expensed by a Service Provider or any of its Affiliates in accordance with GAAP for rights to make Eligible Interactive Streams or Eligible Limited Downloads of a musical work embodied in a sound recording through the Service Provider for the Accounting Period, which amount shall equal the Applicable Consideration for those rights at the time the Applicable Consideration is properly recognized as an expense under GAAP. As used in this definition, ‘‘Applicable Consideration’’ means anything of value given for the identified rights to undertake the Licensed Activity, including, without limitation, ownership equity, monetary advances, barter or any other monetary and/or nonmonetary consideration, whether that consideration is conveyed via a single agreement, multiple agreements and/or agreements that do not themselves authorize the Licensed Activity but nevertheless provide consideration for the identified rights to undertake the Licensed Activity, and including any value given to an Affiliate of a Sound Recording Company for the rights to undertake the Licensed Activity. Value given to a Copyright Owner of musical works that is controlling, controlled by, or under common control with a Sound Recording Company for rights to undertake the Licensed Activity shall not be considered value given to the Sound Recording Company. Notwithstanding the foregoing, Applicable Consideration shall not include in-kind promotional PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 80457 consideration given to a Sound Recording Company (or Affiliate thereof) that is used to promote the sale or paid use of sound recordings embodying musical works or the paid use of music services through which sound recordings embodying musical works are available where the in-kind promotional consideration is given in connection with a use that qualifies for licensing under 17 U.S.C. 115. User Manipulation means any behavior that artificially distorts the number of Plays, including, but not limited to, the use of manual (e.g., click farms) or automated (e.g., bots) means. § 385.3 Late payments. A Licensee shall pay a late fee of 1.5% per month, or the highest lawful rate, whichever is lower, for any payment owed to a Copyright Owner and remaining unpaid after the due date established in 17 U.S.C. 115(c)(2)(I) or 17 U.S.C. 115(d)(4)(A)(i), as applicable and detailed in part 210 of this title. Late fees shall accrue from the due date until the Copyright Owner receives payment. § 385.4 Recordkeeping for promotional or free trial non-royalty-bearing uses. (a) Effect of Copyright Office recordkeeping regulations. Unless and until the Copyright Office promulgates superseding regulations concerning recordkeeping for promotional or free trial non-royalty-bearing uses subject to this part, the recordkeeping provisions in this section shall apply to Service Providers. (b) General. A Service Provider transmitting a sound recording embodying a musical work subject to section 115 and subparts C and D of this part and claiming a Promotional Offering or Free Trial Offering zero royalty rate shall keep complete and accurate contemporaneous written records of making or authorizing Eligible Interactive Streams or Eligible Limited Downloads, including the sound recordings and musical works involved, the artists, the release dates of the sound recordings, a brief statement of the promotional activities authorized, the identity of the Offering or Offerings for which the zero-rate is authorized (including the internet address if applicable), and the beginning and end date of each zero rate Offering. (c) Retention of records. A Service Provider claiming zero rates shall maintain the records required by this section for no less time than the Service Provider maintains records of royaltybearing uses involving the same types of Offerings in the ordinary course of business, but in no event for fewer than E:\FR\FM\30DER1.SGM 30DER1 80458 Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations five years from the conclusion of the zero rate Offerings to which they pertain. (d) Availability of records. If the Mechanical Licensing Collective requests information concerning zero rate Offerings, the Service Provider shall respond to the request within an agreed, reasonable time. ■ 3. Revise subpart C to read as follows: Subpart C—Eligible Interactive Streaming, Eligible Limited Downloads, Standalone Limited Offerings, Mixed Service Bundles, Bundled Subscription Offerings, Locker Services, and Other Delivery Configurations Sec. 385.20 385.21 § 385.20 reproductions or distributions of musical works through Standalone Limited Offerings, Mixed Service Bundles, Bundled Subscription Offerings, Paid Locker Services, and Purchased Content Locker Services provided through subscription and nonsubscription digital music Service Providers in accordance with the provisions of 17 U.S.C. 115, exclusive of Offerings subject to subpart D of this part. § 385.21 Scope. Royalty rates and calculations. Scope. This subpart establishes rates and terms of royalty payments for Eligible Interactive Streams and Eligible Limited Downloads of musical works, and other Royalty rates and calculations. (a) Applicable royalty. Licensees that engage in Licensed Activity covered by this subpart pursuant to 17 U.S.C. 115 shall pay royalties therefor that are calculated as provided in this section. (b) Rate calculation. Royalty payments for Licensed Activity in this subpart shall be calculated as provided in this paragraph (b). If a Service Provider makes available different Offerings, royalties must be calculated separately with respect to each Offering taking into consideration Service Provider Revenue, TCC, subscribers, Plays, expenses, and Performance Royalties associated with each Offering. A Service Provider shall not be required to subject the same portion of Service Provider Revenue, TCC, subscribers, Plays, expenses, or Performance Royalties to the calculation of royalties for more than one Offering in an Accounting Period. (1) Step 1: Calculate the all-in royalty for the Offering. For each Accounting Period, the all-in royalty for each Offering in this subpart with the exception of Mixed Service Bundles shall be the greater of: (i) The applicable percent of Service Provider Revenue, as set forth in Table 1 to this paragraph (b)(1), and (ii) The result of the TCC Prong Calculation for the respective type of Offering as set forth in Table 2 to this paragraph (b)(1). For Mixed Service Bundles, the all-in royalty shall be the result of the TCC Prong Calculation as set forth in Table 2. TABLE 1 TO PARAGRAPH (b)(1) Royalty year: 2023 Percent of Service Provider Revenue ......................................................................... 15.1 2024 2025 15.2 15.25 2026 15.3 2027 15.35 TABLE 2 TO PARAGRAPH (b)(1) Type of offering TCC prong calculation Standalone Non-Portable Subscription Offering—Streaming Only .......... The lesser of (i) 26.2% of TCC for the Accounting Period or (ii) the aggregate amount of 60 cents per subscriber for the Accounting Period. The lesser of (i) 26.2% of TCC for the Accounting Period or (ii) the aggregate amount of 60 cents per subscriber for the Accounting Period. The lesser of (i) 26.2% of TCC for the Accounting Period or (ii) the aggregate amount of $1.10 per subscriber for the Accounting Period. 26.2% of TCC for the Accounting Period. Standalone Non-Portable Subscription Offering—Mixed ......................... Standalone Portable Subscription Offering .............................................. khammond on DSKJM1Z7X2PROD with RULES Free nonsubscription/ad-supported services free of any charge to the End User. Bundled Subscription Offering .................................................................. Mixed Service Bundle ............................................................................... Purchased Content Locker Service .......................................................... Standalone Limited Offering ..................................................................... Paid Locker Service ................................................................................. (2) Step 2: Subtract applicable Performance Royalties. From the amount determined in step 1 in paragraph (b)(1) of this section, for each Offering of the Service Provider, subtract the total amount of Performance Royalties that the Service Provider has expensed or will expense pursuant to public performance licenses in connection with uses of musical works through that Offering during the Accounting Period that constitute Licensed Activity. Although this amount may be the total of the Service Provider’s payments for that Offering for VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 24.5% 26.2% 26.2% 26.2% 26.2% of of of of of TCC TCC TCC TCC TCC for for for for for the the the the the the Accounting Period, it will be less than the total of the performance royalties if the Service Provider is also engaging in public performance of musical works that does not constitute Licensed Activity. In the case in which the Service Provider is also engaging in the public performance of musical works that does not constitute Licensed Activity, the amount to be subtracted for Performance Royalties shall be the amount allocable to Licensed Activity uses through the relevant Offering as determined in relation to all uses of musical works for which the Service PO 00000 Frm 00026 Fmt 4700 Sfmt 4700 Accounting Accounting Accounting Accounting Accounting Period. Period. Period. Period. Period. Provider pays performance royalties for the Accounting Period. The Service Provider shall make this allocation on the basis of Plays of musical works, provided that if the Service Provider is not capable of tracking Play information, including because of bona fide limitations of the available technology for Offerings of that nature or of devices useable with the Offering, the allocation may instead be accomplished in a manner consistent with the methodology used for making royalty payment allocations for the use of individual sound recordings, and E:\FR\FM\30DER1.SGM 30DER1 khammond on DSKJM1Z7X2PROD with RULES Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations further provided that, if the Service Provider is also not capable of utilizing a manner consistent with a methodology used for making royalty payment allocations for the use of individual sound recordings, the Service Provider may use an alternative, good faith methodology that is reasonable, identifiable, and implemented consistently. (3) Step 3: Determine the payable royalty pool. The payable royalty pool is the amount payable for the reproduction and distribution of all musical works used by the Service Provider by virtue of its Licensed Activity for a particular Offering during the Accounting Period. This amount is the greater of: (i) The result determined in step 2 in paragraph (b)(2) of this section; and (ii) The royalty floor (if any) resulting from the calculations described in paragraph (d) of this section. (4) Step 4: Calculate the per-work royalty allocation. This is the amount payable for the reproduction and distribution of each musical work used by the Service Provider by virtue of its Licensed Activity through a particular Offering during the Accounting Period. To determine this amount, the result determined in step 3 in paragraph (b)(3) of this section must be allocated to each musical work used through the Offering. The allocation shall be accomplished by the Mechanical Licensing Collective by dividing the payable royalty pool determined in step 3 for the Offering by the total number of Plays of all musical works through the Offering during the Accounting Period (other than Plays subject to subpart D of this part) to yield a per-Play allocation, and multiplying that result by the number of Plays of each musical work (other than Plays subject to subpart D of this part) through the Offering during the Accounting Period. For purposes of determining the per-work royalty allocation in all calculations under step 4 in this paragraph (b)(4) only (i.e., after the payable royalty pool has been determined), for sound recordings of musical works with a playing time of over 5 minutes, each Play shall be counted as provided in paragraph (c) of this section. Notwithstanding the foregoing, if the Service Provider is not capable of tracking Play information because of bona fide limitations of the available technology for Offerings of that nature or of devices useable with the Offering, the per-work royalty allocation may instead be accomplished in a manner consistent with the methodology used for making royalty payment allocations for the use of individual sound recordings. VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 (c) Overtime adjustment. For purposes of the calculations in step 4 in paragraph (b)(4) of this section only, for sound recordings of musical works with a playing time of over 5 minutes, adjust the number of Plays as follows. (1) 5:01 to 6:00 minutes—Each Play = 1.2 Plays. (2) 6:01 to 7:00 minutes—Each Play = 1.4 Plays. (3) 7:01 to 8:00 minutes—Each Play = 1.6 Plays. (4) 8:01 to 9:00 minutes—Each Play = 1.8 Plays. (5) 9:01 to 10:00 minutes—EachPlay = 2.0 Plays. (6) For playing times of greater than 10 minutes, continue to add 0.2 Plays for each additional minute or fraction thereof. (d) Royalty floors for specific types of Offerings. The following royalty floors for use in step 3 in paragraph (b)(3) of this section shall apply to the respective types of Offerings: (1) Standalone non-portable Subscription Offerings—streaming only. Except as provided in paragraphs (d)(4) and (6) of this section with respect to Standalone Limited Offerings, in the case of a Subscription Offering through which an End User can listen to sound recordings only in the form of Eligible Interactive Streams and only from a non-portable device to which those Eligible Interactive Streams are originally transmitted while the device has a live network connection, the royalty floor for use in step 3 in paragraph (b)(3) of this section is the aggregate amount of 18 cents per subscriber per Accounting Period. (2) Standalone non-portable Subscription Offerings—mixed. Except as provided in paragraphs (d)(4) and (6) of this section with respect to Standalone Limited Offerings, in the case of a Subscription Offering through which an End User can listen to sound recordings either in the form of Eligible Interactive Streams or Eligible Limited Downloads but only from a non-portable device to which those Eligible Interactive Streams or Eligible Limited Downloads are originally transmitted, the royalty floor for use in step 3 in paragraph (b)(3) of this section is the aggregate amount of 36 cents per subscriber per Accounting Period. (3) Standalone portable Subscription Offerings. Except as provided in paragraphs (d)(4) and (6) of this section with respect to Standalone Limited Offerings, in the case of a Subscription Offering through which an End User can listen to sound recordings in the form of Eligible Interactive Streams or Eligible Limited Downloads from a portable device, the royalty floor for use in step PO 00000 Frm 00027 Fmt 4700 Sfmt 4700 80459 3 in paragraph (b)(3) of this section is the aggregate amount of 60 cents per subscriber per Accounting Period. (4) Bundled Subscription Offerings. In the case of a Bundled Subscription Offering, the royalty floor for use in step 3 in paragraph (b)(3) of this section is the aggregate amount of 33 cents per Accounting Period for each Active Subscriber. Notwithstanding the foregoing, solely where the Licensed Activity provided as part of a Bundled Subscription Offering would qualify as a Standalone Limited Offering if offered on a standalone basis, the royalty floor for use in step 3 in paragraph (b)(3) of this section is the aggregate amount of 25 cents per Accounting Period for each Active Subscriber. (5) Mixed Service Bundles. In the case of a Mixed Service Bundle, the royalty floor for use in step 3 in paragraph (b)(3) of this section is the aggregate amount of 25 cents per Accounting Period for each Active Subscriber. (6) Other Offerings. A Standalone Limited Offering, a Paid Locker Service, a Purchased Content Locker Service, and a free nonsubscription/adsupported service free of any charge to the End User shall not be subject to a royalty floor in step 3 in paragraph (b)(3) of this section. (e) Computation of per-subscriber rates and royalty floors. For purposes of this section, to determine the persubscriber rates in step 1 in paragraph (b)(1) of this section and the royalty floors in step 3 in paragraph (b)(3) of this section, as applicable to any particular Offering, the total number of subscribers for the Accounting Period shall be calculated by taking all End Users who were subscribers for a complete Accounting Period, prorating in the case of End Users who were subscribers for only part of an Accounting Period (such proration may take into account the subscriber’s billing period), and deducting on a prorated basis for End Users covered by an Offering subject to subpart D of this part, except in the case of a Bundled Subscription Offering, subscribers shall be determined with respect to Active Subscribers. The product of the total number of subscribers for the Accounting Period and the specified number of cents per subscriber (or Active Subscriber, as the case may be) shall be used as the subscriber-based components of the royalty calculation for the Accounting Period. A Family Plan subscription shall be treated as 1.75 subscribers per Accounting Period, prorated in the case of a Family Plan subscription in effect for only part of an Accounting Period. A Student Plan subscription shall be treated as 0.5 E:\FR\FM\30DER1.SGM 30DER1 80460 Federal Register / Vol. 87, No. 250 / Friday, December 30, 2022 / Rules and Regulations subscribers per Accounting Period, prorated in the case of a Student Plan subscription in effect for only part of an Accounting Period. A Bundled Subscription Offering containing a Family Plan with one or more Active Subscriber(s) shall be treated as having 1.75 Active Subscribers. A Bundled Subscription Offering containing a Student Plan with an Active Subscriber shall be treated as having 0.5 Active Subscribers. For the purposes of calculating per-subscriber rates and royalty floors under this section, Artificial Accounts shall not be counted as subscribers, Active Subscribers, or End Users. ■ 4. Revise subpart D to read as follows: Subpart D—Promotional Offerings, Free Trial Offerings and Certain Purchased Content Locker Services Sec. 385.30 385.31 § 385.30 Scope. Royalty rates. Scope. This subpart establishes rates and terms of royalty payments for Promotional Offerings, Free Trial Offerings, and certain Purchased Content Locker Services provided by subscription and nonsubscription digital music Service Providers in accordance with the provisions of 17 U.S.C. 115. § 385.31 Royalty rates. khammond on DSKJM1Z7X2PROD with RULES (a) Promotional Offerings. For Promotional Offerings of audio-only Eligible Interactive Streams and Eligible Limited Downloads of sound recordings embodying musical works that the Sound Recording Company authorizes royalty-free to the Service Provider, the royalty rate is zero. (b) Free Trial Offerings. For Free Trial Offerings, the royalty rate is zero. (c) Certain Purchased Content Locker Services. For every Purchased Content Locker Service for which the Service Provider receives no monetary consideration, the royalty rate is zero. David P. Shaw, Chief Copyright Royalty Judge. David R. Strickler, Copyright Royalty Judge. Steve Ruwe, Copyright Royalty Judge. Approved by: Dr. Carla D. Hayden, Librarian of Congress. [FR Doc. 2022–28316 Filed 12–29–22; 8:45 am] BILLING CODE 1410–72–P VerDate Sep<11>2014 16:40 Dec 29, 2022 Jkt 259001 DEPARTMENT OF VETERANS AFFAIRS 38 CFR Part 39 RIN 2900–AR71 Statutory Increase in Operations and Maintenance Grant Funding Department of Veterans Affairs. Final rule. AGENCY: ACTION: The Department of Veterans Affairs (VA) is amending its regulations that govern Federal grants to establish, expand, improve, or operate and maintain veterans’ cemeteries. This final rule implements new statutory amendments to increase the maximum amount of grants to States and Tribal Organizations to operate and maintain veterans’ cemeteries as authorized by section 2206 of the ‘‘Johnny Isakson and David P. Roe, M.D. Veterans Health Care and Benefits Improvement Act of 2020’’ (the Act). Effective on January 5, 2021, the maximum amount of operation and maintenance grants increased from $5 million to $10 million. This final rule implements that statutory change. Additionally, VA is revising the date by which the list of approved preapplications is prioritized for fiscal year funding from August 15 to October 1 each year. DATES: This rule is effective December 30, 2022. FOR FURTHER INFORMATION CONTACT: George Eisenbach, Director of Veterans Cemetery Grants Program, National Cemetery Administration (41E), Department of Veterans Affairs, 810 Vermont Avenue NW, Washington, DC 20420. Telephone: (202) 632–7369. (This is not a toll-free telephone number.) SUMMARY: This final rule amends 38 CFR part 39 to conform with statutory amendments made by section 2206 of Public Law 116–315, the ‘‘Johnny Isakson and David P. Roe, M.D. Veterans Health Care and Benefits Improvement Act of 2020’’ (the Act). The Act amended Section 2408(f)(2) of title 38, United States Code (U.S.C.) to increase the maximum amount of grants VA could award for operating and maintaining Veterans’ cemeteries from $5 million to $10 million. To implement this authority, VA is revising regulatory text to replace ‘‘$5 million’’ with ‘‘$10 million’’ every place it appears in 39 CFR 39.3 and 39.80. Specifically, VA is revising the information for Priority Group 4 operation and maintenance grants in existing 38 CFR 39.3(c) to update the reference to the maximum grant awards SUPPLEMENTARY INFORMATION: PO 00000 Frm 00028 Fmt 4700 Sfmt 4700 to be made in any fiscal year from $5 million to $10 million. Similarly, we are revising the grant award information in § 39.80(a)(2) and (b) to clarify that operations and maintenance grants for Priority Group 4 projects must not result in a payment of more than $10 million. In § 39.3(d), VA is replacing ‘‘By August 15 of each year’’ with ‘‘By October 1 of each year’’ to align the date for finalizing the prioritization of preapplications to the beginning of the fiscal year in which the associated final grant applications will be eligible for award. The August 15 date is not required by statute, but instead was a self-imposed deadline for finalizing the priority listing of preapplications when the grant program was first established. Since then, the number of preapplications has grown, and VA needs the additional time to conduct the final prioritization. VA publishes this date in regulation to ensure transparency and awareness of the process within the interested grant community. Preapplications are accepted and evaluated on a rolling basis; however, only those preapplications that were received on or before July 1 of the current fiscal year are eligible for consideration in the prioritization process for the upcoming/next fiscal year. The preapplication process serves as a means to determine whether the proposed project conforms to statutory and regulatory requirements. If the preapplication is conforming, VA notifies the State or Tribal Organization that the preapplication has been found to meet the requirements, and the proposed project is included in the prioritization. This change from August 15 to October 1 for finalizing the prioritization list expands VA’s timeframe for conducting the prioritization of preapplications by approximately 45 calendar days. This does not affect a grant applicant’s ability or opportunity to submit a final grant application for the fiscal year in which it is eligible for award and does not affect timeframes for awarding grants. Applicants may begin preparing final grant applications at any time and may submit the final application at any time. The October 1 date is merely the announcement of the priority of proposed projects based on preapplications and reflects the order in which those projects will be awarded and funded. Additionally, publishing this date in regulation is primarily informational for grant applicants and is not related to any subsequent deadlines that would affect applicants. VA works with grant applicants throughout the E:\FR\FM\30DER1.SGM 30DER1

Agencies

[Federal Register Volume 87, Number 250 (Friday, December 30, 2022)]
[Rules and Regulations]
[Pages 80448-80460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-28316]


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LIBRARY OF CONGRESS

Copyright Royalty Board

37 CFR Part 385

[Docket No. 21-CRB-0001-PR (2023-2027)]


Determination of Royalty Rates and Terms for Making and 
Distributing Phonorecords (Phonorecords IV)

AGENCY: Copyright Royalty Board, Library of Congress.

ACTION: Final rule.

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SUMMARY: The Copyright Royalty Judges publish final regulations that 
set rates and terms applicable during the period from January 1, 2023 
through December 31, 2027, for the statutory license for making and 
distributing phonorecords of nondramatic musical works.

DATES: 
    Effective date: January 1, 2023.
    Applicability date: These rates and terms are applicable during the 
period from January 1, 2023 through December 31, 2027.

FOR FURTHER INFORMATION CONTACT: Anita Brown, Program Specialist, (202) 
707-7658, [email protected].

SUPPLEMENTARY INFORMATION: 

Background

    On August 31, 2022, the Copyright Royalty Judges (Judges) \1\ 
received a motion stating that several participants, (Settling 
Parties),\2\ had reached a partial settlement (Settlement) regarding 
the rates and terms under section 115 of the Copyright Act, namely, for 
Licensed Activity (as defined in 37 CFR part 385, subpart A \3\) 
presently addressed in subparts C & D of 37 CFR part 385 together with 
certain regulations of general application (e.g., definitions and late 
fee provisions) applicable to the subpart C & D Configurations 
presently addressed in 37 CFR part 385, subpart A, for the 2023-2027 
rate period \4\ and seeking approval of that partial settlement. See 
Motion to Adopt Settlement of Statutory Royalty Rates and Terms for 
Subpart C and D Configurations, Docket No. 21-CRB-0001-PR (2023-2027) 
at 1 (eCRB 27222) \5\ (Motion). The Settling Parties state that ``the 
settlement [ ] represents the consensus of both licensees and licensors 
representing the vast majority of the market for rights under section 
115 for Subpart C & D Configurations.'' \6\ Motion at 3.
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    \1\ The Copyright Royalty Judges as an institution are 
occasionally referenced herein as the Copyright Royalty Board (CRB).
    \2\ The participants who filed the motion are the National Music 
Publishers' Association (NMPA) and Nashville Songwriters Association 
International (NSAI, and collectively with NMPA, the Copyright 
Owners), on the one hand, and the music services, Amazon.com 
Services LLC, Apple Inc., Google LLC, Pandora Media, LLC, and 
Spotify USA Inc. (collectively, Service Participants) on the other 
hand.
    \3\ The definition of ``licensed activity,'' as the term is used 
in subparts C and D of 37 CFR part 385, means the delivery of 
musical works, under voluntary or statutory license, via Digital 
Phonorecord Deliveries in connection with Interactive Eligible 
Streams, Eligible Limited Downloads, Limited Offerings, mixed 
Bundles, and Locker Services. (37 CFR 385.2).
    \4\ The Motion refers to the rate period as ``the full time 
period addressed by the Proceeding.'' Motion at 1.
    \5\ eCRB reference numbers may be used to access relevant 
documents through the Copyright Royalty Board website.
    \6\ The Settling Parties indicate that participant George 
Johnson does not agree to the settlement and that participants David 
Powell and Brian Zisk should be dismissed because they did not file 
a Written Direct Statement. Motion at 3 and n. 1. Mr. Johnson filed 
an opposition to the motion (eCRB. No. 27239) on September 6 which 
the Judges consider relevant to this proposed rule.
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    On September 26, 2022, the Judges issued ``Order 63 to File 
Certification or Provide Settlement Agreements'' (eCRB 27253) (Order 
63), which ordered the Settling Parties to certify that the Motion and 
the Proposed Regulations annexed to the Motion represent the full 
agreement of the Settling Parties, i.e., that there are no other 
related agreements and no other clauses. Order 63 further ordered that 
if such other agreements or clauses exist, the Settling Parties shall 
file them.
    On September 26, 2022, the Settling Parties filed a ``Joint 
Response to George Johnson's Motion to Compel Production of Settlement 
and CRB Order 63'' (eCRB 27257) (Joint Response).\7\ Portions of the 
Joint Response, which were submitted as Restricted, are responsive to 
Order 63. On October 6, 2022, the Settling Parties filed a ``Joint 
Submission of Settling Participants Regarding Settlement Agreement'' 
(eCRB 27278) (Joint Submission) which removed the Restricted 
designation to the ``Settlement Agreement'' attached as Exhibit A to 
the Joint Submission. However, the Joint Response and the Joint 
Submission did not completely and adequately respond to Order 63.
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    \7\ George Johnson's ``Corrected Motion to Compel Parties to 
Immediately Submit Actual Signed Proposed Settlement Agreement for 
Subpart C with Any MOUs or Side Deals here in Phonorecords IV'' was 
filed on September 20, 2022. (eCRB 27249).
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    On October 3, 2022, Google and NMPA filed ``Google and NMPA's Joint 
Notice of Lodging'' (eCRB 27275) (Joint Notice of Lodging), which 
indicated that those two parties found Order 63 unclear regarding what 
is meant by ``related agreements.'' Google and NMPA offered that they 
broadly construed Order 63's reference to ``related agreements'' to 
include certain letter agreements executed between Google, on the one 
hand, and certain music publishers and the NMPA, on the other hand, on 
or around the execution date of the settlement agreement. Google and 
NMPA indicated they will ``lodge'' such letter agreements concurrently 
with their Joint Notice of Lodging. Google and NMPA also indicated that 
they do not believe that the letter agreements are substantively 
related to the Settlement, and that the letter agreements simply 
concern Google's allocation practices to avoid double payments arising 
from certain direct agreements. On October 7, 2022, Google and NMPA 
submitted ``Google and NMPA's Joint Notice of Public Lodging'' which 
included public versions of letter agreements. (eCRB 27279).
    On October 17, 2022, the Judges issued ``Order 64 to File 
Settlement Agreements and Provide Certification'' (eCRB 27284) (Order 
64), which clarified the scope of Order 63 and ordered the Settling 
Parties to:

    (1) file (not ``lodge'') any supplemental written agreements 
between Service Participants, on the one hand, and Copyright Owners 
and/or their affiliates, including copyright owners that they 
represented in this proceeding, on the other hand, that represent 
consideration for, or are contractually related to, the Settlement 
referenced in the Motion.
    (2) file a detailed description of any supplemental oral 
agreements between Service Participants, on the one hand, and 
Copyright Owners and/or their affiliates, including copyright owners 
that they represented in this proceeding, on the other hand, that 
represent consideration for, or are contractually related to the 
Settlement referenced in the Motion, through a certification or 
certifications from individuals with direct knowledge of any such 
supplemental oral agreements.
    (3) file a certification or certifications from a person or 
persons with first-hand knowledge stating that there are no other 
agreements, written or oral, beyond the Settlement, the Settlement 
Agreement and the filed supplemental written or oral agreements 
responsive to this order.
    (4) explain in a supplemental brief why the remaining restricted 
portions of the Joint Response, apart from Exhibit A, from which the 
Restricted designation has been removed, would, if disclosed, 
interfere with the ability of the Producer to obtain like 
information in the future.


[[Page 80449]]


    On October 26, 2022, the Settling Parties filed a ``Joint Response 
to Order 64'' (eCRB 27290) (Joint Response 2).
    In response to item #1 above, Joint Response 2 noted that the 
October 6, 2022, Joint Submission removed the Restricted designation to 
the ``Settlement Agreement'' and attached it within Exhibit A to Joint 
Response 2. In Joint Response 2, Google and NMPA also filed the 
aforementioned letter agreements as Exhibit B to Joint Submission 2.\8\ 
Joint Response 2 also included the Settling Parties' representation 
that other than the Settlement Agreement itself, there are no other 
agreements responsive to Order 64.
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    \8\ Joint Response 2 reiterated Google and NMPA's view that the 
letter agreements are not substantively related to the Settlement, 
and that the letter agreements simply concern Google's allocation 
practices to avoid double payments arising from certain direct 
agreements.
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    In response to item #2 above, Joint Response 2 stated that there 
are no supplemental oral agreements responsive to Order 64.
    In response to item #3 above, Joint Response 2 included Exhibits C-
1 through C-7, certifications from a representative of each of the 
Settling Parties with first-hand knowledge of the Settlement Agreement 
and negotiations, which collectively attest that there are no other 
agreements, written or oral, responsive to Order 64 beyond the 
agreements provided as part of Joint Response 2.
    In response to item #4 above, Joint Response 2 noted that the 
Settling Parties do not believe that there is any reason why any 
restricted portions of the Joint Response need to remain restricted. 
Therefore, the Settling Parties filed, concurrently with Joint Response 
2, a revised version of the Joint Response that removes all redactions, 
entitled ``[Revised to Remove Redactions] Joint Response to George 
Johnson's Motion to Compel Production of Settlement and CRB Order 63.'' 
(eCRB 27289) (Revised Joint Response).
    The Settling Parties offered that through Joint Response 2, and the 
related submissions referenced therein, the Judges have all materials 
necessary to publish the proposed rates and terms for public comment. 
The Settling Parties noted the necessary public comment and objection 
period, as well as potential consequences to the industry if rates and 
terms are not effective in time to be operationalized for the beginning 
of 2023, and therefore request that the Judges publish the proposed 
rates and terms for public comment as soon as possible.\9\ Proposed 
regulations implementing the Settlement are attached to Joint Response 
2.
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    \9\ The Judges are aware of the participants' and the public's 
interest in timely implementation of rates and terms, and note that 
the submission of partial agreements, and related materials as 
restricted, has been a source of unfortunate delay in consideration 
of the proposed settlement of statutory royalty rates and terms for 
subpart C and D configurations.
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    On November 7, 2022, the Judges published the Settlement in the 
Federal Register and requested comments from the public. 87 FR 66976 
(Nov. 7, 2022). Comments were due by December 7, 2022. The Judges 
received 20 comments from interested parties.\10\ One participant, 
George Johnson (GEO) filed two comments opposing Settlement 2.\11\
---------------------------------------------------------------------------

    \10\ Word Collections' Eric Goldberg (eCRB 27370); Word 
Collections' Jeff Price (eCRB 27369); Black Music Action Coalition 
(BMAC) and Music Artists Coalition (MAC) (eCRB 27369); Songwriters 
of North America (SONA) (eCRB 27367); The Recording Academy (eCRB 
27365); The Music Publishers Association of the United States (MPA) 
(eCRB 27364); Eugene ``Lambchops'' Curry (eCRB 27357); Songwriters 
Guild of America, Inc. (SGA), Society of Composers & Lyricists 
(SCL), and Music Creators North America (MCNA), and the individual 
music creators Rick Carnes and Ashley Irwin (together Independent 
Music Creators) (eCRB 27358); Helienne Lindvall, David Lowery and 
Blake Morgan (together Writers) (eCRB 27356); Abby North (eCRB 
27355); Gwendolyn Seale (eCRB 27354); Austin Texas Musicians (eCRB 
27353); Michelle Shocked (eCRB 27352);; The Association of 
Independent Music Publishers (AIMP) (eCRB 27349); Production Music 
Association (PMA) (eCRB 27340); Ross Golan (eCRB 27336); William 
Evans (eCRB 27333); The 100 Percenters (eCRB 27329); and The Church 
Music Publishers Association of the United States (CMPA) (eCRB 
27326); and Upward Bound Music Company (eCRB 27317).
    \11\ On September 6, 2022, before the Judges published the 
Settlement for comment, GEO filed a Response in Opposition to the 
Subpart C Proposed Settlement (eCRB 27239) (GEO Opposition). On 
November 7, 2022, after the Judges published the Settlement for 
comment, GEO filed Comments and Second Response in Opposition to the 
Subpart C Proposed Settlement in Phonorecords IV (eCRB 27371) (GEO 
Second Opposition), which objects to adoption of the Settlement and 
included in an Exhibit GEO's prior Response in Opposition to the 
Subpart C Proposed Settlement. GEO also states his desire to join 
(entirely or partially) with several commenters that oppose aspects 
of the Settlement.
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Statutory Standard and Precedent

    Pursuant to section 801(b)(7)(A) of the Copyright Act, the Judges 
have the authority to adopt settlements between some or all of the 
participants to a proceeding at any time during a proceeding. This 
section states that the Judges shall: (1) provide an opportunity to 
comment on the agreement to non-participants who would be bound by the 
terms, rates, or other determination set by the agreement; and (2) 
provide an opportunity to comment and to object to participants in the 
proceeding who would be bound by the terms, rates, or other 
determination set by the agreement. See section 801(b)(7)(A). The 
Judges may decline to adopt the agreement as a basis for statutory 
terms and rates for participants not party to the agreement if any 
participant objects and the Judges conclude that the agreement does not 
provide a reasonable basis for setting statutory terms or rates. Id.
    Regardless of the comments of interested parties or participants, 
the Judges are not compelled to adopt a settlement to the extent it 
includes provisions that are inconsistent with the statutory license. 
See Review of Copyright Royalty Judges Determination, 74 FR 4537, 4540 
(Jan. 26, 2009) (error for Judges to adopt settlement without threshold 
determination of legality); see also Review of Copyright Royalty Judges 
Determination, 73 FR 9143, 9146 (Feb. 19, 2008) (error not to set 
separate rates as required under sections 112 and 114 when parties' 
unopposed settlement combined rates in contravention of those statutory 
sections).\12\
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    \12\ The Register found that a ``paucity of evidence'' in the 
record to support a determination of separate rates for the separate 
licenses ``does not dispatch the . . . Judges' statutory 
obligations.'' Review of Copyright Royalty Judges Determination, 73 
FR 9143, 9145 (Feb. 19, 2008). The Register noted that the Judges 
have subpoena power to compel witnesses to appear and give 
testimony. Id.
---------------------------------------------------------------------------

    As the Register of Copyrights (Register) observed in the 2009 
review of the Judges' decision, nothing in the statute precludes 
rejection of any portions of a settlement that would be contrary to 
provisions of the applicable license or otherwise contrary to the 
statute. 74 FR 4540. In the instance under review by the Register, the 
settlement agreement purported to alter the date(s) for payment of 
royalties granting licensees a longer period than section 115 provided. 
Id. at 4542. The Register also noted that nothing in the statute 
relating to adoption of settlements precludes the Judges from 
considering comments of non-participants ``which argue that proposed 
[settlement] provisions are contrary to statutory law.'' Id. at 4540.

Summary of Non-Participant Comments

    The comments of interested parties in this proceeding overlapped in 
significant aspects and are summarized as follows.

Comments in Support

    The following commenters all express support for adoption of the 
Settlement. Black Music Action Coalition (BMAC) and Music Artists 
Coalition (MAC); Songwriters of North America (SONA); The Recording 
Academy; The Music Publishers Association of the United

[[Page 80450]]

States (MPA); The Association of Independent Music Publishers (AIMP); 
Production Music Association (PMA); Ross Golan; The 100 Percenters; and 
The Church Music Publishers Association of the United States (CMPA).
    These commenters express generally positive assessment of the 
Settlement. However, several of these comments, while supportive of 
adoption of the Settlement, take issue with the current extent of 
regulation of musical works and with aspects of the rate setting 
process, which are beyond the scope of the Judges' consideration of the 
Settlement.

Comments in Opposition

    Word Collections' Eric Goldberg offers a series of comparisons of 
historical mechanical per play rates to the growth in 115 licensed 
music services' Subscriber Counts, Service Revenue, and Total Content 
Costs (``meaning the amount paid to labels for sound recording 
rights''). Mr. Goldberg also presents predictions of mechanical per 
play rates over the Phonorecords IV rate period under the terms of the 
Settlement. His analysis is intended to support his view that, as a 
matter of equity, the headline rates (applicable to service revenue) 
should be increased further to give songwriters parity with the music 
services and record labels who depend upon the songwriters' creative 
works of authorship. Word Collections' Eric Goldberg at 1-6.
    Word Collections' Jeff Price reiterates aspects of the comment from 
Word Collections' Eric Goldberg, advancing the notion that any increase 
realized by songwriters and musical work owners under the settlement 
would not keep pace with the cost of living, inflation, or with the 
benefits realized by music services or sound recording copyright 
owners. Mr. Price offers that a headline rate of 25% combined with the 
elimination of several deductions from attributable revenue would 
properly compensate songwriters and copyright owners. Word Collections' 
Jeff Price at 6-7.
    Mr. Price states that his comment is intended to provide 
information to the Judges regarding the NMPA and who it represents when 
taking into consideration the proposed Settlement. Mr. Price offers 
that NMPA represents less than 2% of U.S. (and rest of the world) music 
publishers and suggests that NMPA's interests are not aligned with 98% 
of music publishers. Mr. Price goes on to indicate that major labels, 
Sony, Universal and Warner, control equity positions in music services, 
and that these three entities own and/or control the major record 
labels, the associated sound recordings, the major music publishers, 
and the associated musical composition copyrights. Mr. Price offers 
that the intertwined relationships create conflicts of interest. 
Specifically, Mr. Price points to conflicts of interests that were 
noted in relationship to a prior proposed settlement in this 
proceeding, and a suggested conflict of interest in relationship to 
SoundExchange (the designated collective for royalties under specific 
statutory licenses for sound recordings). Word Collections' Jeff Price 
at 1-2.
    Mr. Price suggests that the NMPA and or its members have self-
negotiated to some degree to determine what musical work copyright 
owners should be paid in the future. Word Collections' Jeff Price at 2. 
Mr. Price then addresses issues surrounding the scope or availability 
of the section 115 license, in relation to certain licensees, 
suggesting that in the future there may be an informative and robust 
market for willing buyer willing seller negotiations for mechanical. 
Id. at 2-6.
    Songwriters Guild of America, Inc. (SGA), Society of Composers & 
Lyricists (SCL), and Music Creators North America (MCNA), and the 
individual music creators Rick Carnes and Ashley Irwin (together 
Independent Music Creators) \13\ comment in opposition, asking the 
Judges to modify or reject the Settlement in its present form as a 
necessity for providing economic justice for music creators. 
Independent Music Creators at 2. Independent Music Creators opine that 
the Settlement represents insufficient and unreasonable limited 
increases in streaming rates over the next five years, especially in 
light of anticipated inflation. Id. at 10. Independent Music Creators 
acknowledge that the Settlement includes elements other than a headline 
percentage of revenue, and that these other elements, such as the total 
content cost (TCC) component and fixed per subscriber elements, have 
increased far more than the headline rate. However, Independent Music 
Creators criticize these details as complex ancillary terms, which lack 
plain language explanations. Furthermore, Independent Music Creators 
offer that the possibility of increases in licensees' subscription 
revenue that may positively impact mechanical royalties under the 
settlement, or offset inflationary losses, are at best speculative and 
at worst specious. Id. at 12. They instead voice preference for an 
approach based on cost of living adjustment principles, including what 
they offer as a necessary application of cost of living adjustments to 
royalty pools within the existing greater than/lesser of rate 
structure. Id.
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    \13\ The Independent Music Creators' state that their comments 
are endorsed by Alliance for Women Film Composers (AWFC), Screen 
Composers Guild of Canada (SCGC), Songwriters Association of Canada 
(SAC), Asia-Pacific Music Creators Alliance (APMA), Music Answers 
(M.A.), Fair Trade Music International (FTMI), Pan-African Composers 
and Songwriters Alliance (PACSA), and Alliance of Latin American 
Composers & Authors (AlcaMusica).
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    Independent Music Creators warn of conflicts and complications 
surrounding the streaming royalty rate negotiations, and potential 
self-dealing. They offer their suspicion that major music publisher-
affiliated record companies exercised undue influence on the 
Settlement. Id. at 14. Independent Music Creators criticize music 
publishers' silence regarding the traditional ratio of label versus 
publisher share of revenue, and point to the opinions of Merck 
Mercuriadis, an executive at the music publisher, Hipgnosis, that major 
music publishers are not free to do what's in the best interests of 
their constituency, because they're owned and controlled by their 
respective major recorded music companies. Id. at 15.
    Ultimately, Independent Music Creators do not indicate that 
specific undue influence or conflicts of interest impacted the 
Settlement but suggest that the possibility raises questions as to 
whether the Settlement can reliably be shown to have been arrived at 
with adequate and unconflicted representation of music creator and 
publisher interests, and whether the results reached following such 
negotiations are reasonable. Id. at 17. Independent Music Creators also 
urge that the Judges address (1) whether the Settling Parties should be 
required to explain in plain language how their streaming royalty rate 
settlement terms will avoid catastrophic losses in value due to 
inflation over the next five years; (2) whether a cost of living 
adjustment provision is warranted, as such provisions have been 
included in several other recently negotiated rate agreements approved 
by the CRB, and; (3) whether the proposed settlement agreement was 
negotiated with adequate and unconflicted representation of music 
creator and publisher interests, leading to results that provide a 
reliably reasonable basis for the setting of fair and equitable 
statutory streaming rates and terms. Id. at 18.
    Songwriters Helienne Lindvall, David Lowery, and Blake Morgan 
(Writers) \14\ support the Settlement as far as it goes

[[Page 80451]]

but with some reservations. Writers at 1. Writers express concern that 
inflation may diminish the rates for copyright owners. They argue that 
the lack of a cost of living adjustment within the rate structure is 
wrong and arbitrary, particularly since they do not perceive any 
justification has been given. Writers dispute the view that because 
copyright owners receive a share of revenue from the statutory 
licensees that increasing revenue from increases in subscription prices 
or number of subscribers will accrue to copyright owners benefit. They 
argue that a cost of living adjustment would provide more effective 
protection against inflation. Writers suggest that the Judges could add 
a new step in the proposed settlements regulations, where a cost of 
living adjustment would be applied after the per work royalty 
allocation is determined. Id. at 5-7.
---------------------------------------------------------------------------

    \14\ Writers' comment was submitted by Christian L. Castle as 
Counsel.
---------------------------------------------------------------------------

    Writers posit that the rate calculation formula in the Settlement 
is unduly complex. While Writers acknowledge some compelling reasons as 
to why complexity developed, they refer to the calculation of streaming 
mechanicals set forth in the Settlement as mind-numbing in complexity. 
They go on to allege that the complexity is nonsensical. Id. at 8-
11.\15\
---------------------------------------------------------------------------

    \15\ Writers also take issue with a number of procedures in CRB 
proceedings, which are beyond the scope consideration of the 
settlement at issue.
---------------------------------------------------------------------------

    Writers then address late fees, which they deem similar to credit 
card interest. They argue that late fees should be treated as an 
additional royalty payment under any publishing agreement. Otherwise, 
the Writers allege, a late fee might be treated as a catalog-wide 
penalty and that a copyright owner collecting the late fee could argue 
should be retained for its own account, without attribution to specific 
works or songwriters. Id. at 12.
    Writers argue for the clarification of the ``overtime adjustment'' 
language such that the long-song adjustment is a bonus and not a 
penalty. They cite to the version of section 115 that was in force 
prior to the enactment of the MMA for the principle that copyright 
owners should not bear the cost of the long song bonus through a 
reduction in the statutory rates that may otherwise be applicable to 
songs that fall below the overtime adjustment. Id. at 13-15.
    Writers request that the Judges address the possibility that the 
Settlement would allow licensees to include activity in the denominator 
(in step 4) that should not be there (such as podcasts or spoken word 
recordings). They offer that once such undue plays are included in that 
denominator it is very difficult to remove these non-royalty bearing 
tracks and restate all earnings. Id. at 15-16.
    Abby North expresses some favorable views toward the settlement, 
but offers her criticism of the delays in the final implementation of 
rate setting proceedings, in the current proceeding and others. She 
takes issue with the lack of transparency regarding to submissions 
related to the Settlement and resulting delays. Abby North at 1. Ms. 
North states that the section 115 rates and terms must include a cost 
of living adjustment and that the Settling Parties should agree to 
including such adjustments. She disputes that music services' 
subscription prices and number of subscribers would provide an organic 
cost of living adjustment. Id. at 2.
    Gwendolyn Seale, a music lawyer who represents songwriters, offers 
comments on her own behalf opposing the settlement. Ms. Seale takes 
issue with adoption of the Settlement as it would thwart application of 
the willing buyer, willing seller rate setting standard that would have 
been applied in a determination made by the Judges absent settlement. 
Gwendolyn Seale at 2-3. She also alleges that the Settlement is unduly 
complex and results in troubling trends in resulting the per play 
allocations. Id at 3-4.
    Ms. Seale suggests that while the Judges may not be able to fix the 
rate formula, the Judges should integrate a cost of living adjustment 
to be applied to the ``payable royalty pool.'' She suggests adding a 
cost of living adjustment at the end-result following all of the 
greater and lesser of calculations and the removal of the performance 
royalties from the ``all-in royalty pool.'' Id. at 5. Ms. Seale also 
takes issue with several procedures and delays occurring within the 
proceeding process. Id at 3, 5-6.
    Michelle Shocked submits comments that ``agree with Participant 
George Johnson's September 6, 2022 objections for the same following 
reasons.'' Michelle Shocked at 1-4. Those objections from George 
Johnson are set forth in the next section below. In addition, Ms. 
Shocked raises issues about certain music services' alleged lack of 
compliance with the section 115 license and other alleged piracy of her 
works. Id. at 4-6.
    Austin Texas Musicians request that the Judges include a cost of 
living adjustment. Austin Texas Musicians at 1. Eugene ``Lambchops'' 
Curry, William Evans and Upward Bound Music Company do not pointedly 
address the Settlement, but instead propose various alternative rates 
ranging from 0.12 cent per stream to $3.00 per stream. Eugene Curry at 
1-2; William Evans at 1; Upward Bound at 1-3.

Mr. Johnson's Opposition to the Settlement

    Proceeding participant George Johnson (GEO) objects to the 
Settlement in part because, in his view, it suffers from the same 
issues that the Judges found to be a basis for their March 30, 2022 
withdrawal and refusal to adopt another proposed settlement, namely 
that a) the settlement has no inflation adjustment for what he deems to 
be a static rate; b) it suffers from same self-dealing and conflicts of 
interest concerns; and c) the settlement may possibly be related to an 
undisclosed side deal. GEO Second Opposition at 15.
    While GEO refers to the Settlement offer as the bare minimum, he 
also asserts that the 15.35% percent of revenue element within the 
Settlement for 2027 is too low, and that 20% to 25% would be a 
reasonable percent of revenue element. GEO Second Opposition at 29, 13. 
GEO maintains that the 15.1% percent of revenue element within the 
Settlement for 2023 is not an increase in value, and that the 15.1% to 
15.35% percent of revenue elements for the rate period is essentially a 
static rate, which GEO indicates is in tension with the Judges' March 
30, 2022 withdrawal and refusal to adopt another proposed settlement. 
Id. GEO questions why neither the percent of revenue element nor the 
per-subscriber elements are indexed for inflation, suggesting that is 
also in tension with the Judges' March 30, 2022 decision. Id.
    GEO expresses concern that adoption of the Settlement may thwart 
application of the willing buyer, willing seller rate setting standard 
that would have been applied in a determination made by the Judges 
absent settlement. Id. at 14.
    GEO also includes several broad criticisms regarding value realized 
by investors in affected businesses as well as the salaries of 
executives at such businesses. Id. at 15. He adds accusations of price 
fixing and antitrust concerns across the music business. Id. at 16. GEO 
suggests that the Settlement does not adequately account for revenue 
that licensees may realize through their sale of data and advertising. 
Id.
    GEO alleges that Google and NMPA's Joint Notice of Public Lodging, 
filed to update their response to Order 63 to File Certification or 
Provide Settlement Agreements, shows that ``the 3 record labels'' are 
using direct licenses for themselves with music services while using 
the CRB process to price-fix all of

[[Page 80452]]

their competitors. Id. at 17-18, 20-21. GEO suggests that major 
publishers' direct licenses reflect different rates and terms than the 
statutory rates proposed in the Settlement. He also claims that non-
disclosure agreements prevent anyone from knowing the rates and terms 
in those direct licenses. Id. at 18.
    GEO attempts to compare the Settlement to a vaguely referenced 
direct deal involving Sony from 2011, covering unspecified rights with 
an unknown party, which apparently is not in the record of this 
proceeding. GEO's cryptic reference to a 2011 deal for unspecified 
rights is apparently meant to suggest that there might be additional 
undisclosed consideration in relation to the Settlement. Id. at 19-20.
    GEO also includes alternative rate proposals and urges the Judges 
to abolish what he refers to as a ``free limited download loophole'' or 
a ``free and unlimited limited downloads loophole.'' Id at 2, 3. GEO 
further addresses this matter as an element within his WDS which 
proposes to plug the free and unlimited limited downloads loophole. Id. 
at 2, 11-15.\16\
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    \16\ GEO's opposition to the ``free and unlimited limited 
downloads loophole'' may, on its face, appear somewhat vague. 
However, GEO's proposal appears to relate to an issue and proposal 
raised more precisely in Copyright Owners' WDS, intended to close a 
hole in the terms that could be seen as leaving some uses without a 
rate. Restricted Downloads have been defined as any downloads that 
are not permanent, including Eligible Limited Downloads. However, 
past regulations (and seemingly those set forth in the Settlement) 
do not provide a rate for Restricted Downloads. Copyright Owners' 
WDS proposed revising the definitions to maintain the allowance for 
zero rate Restricted Downloads solely in connection with Purchased 
Content Locker Services and set a rate for other Restricted 
Downloads equal to the penny rate for Permanent Downloads. Copyright 
Owners WDS at 23-24.
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Judges' Analysis and Conclusions

    Chapter 8 of the Copyright Act encourages parties to enter into 
settlement negotiations, ultimately the decision as to whether a 
contested settlement should be approved on motion is subject to the 
Judges' discretion, informed by the submissions of the Settling Parties 
and the commenters, and by the Judges' application of the law to the 
facts. Section 801(b)(7)(A) is clear that the Judges have the authority 
to adopt settlements between some or all of the participants to a 
proceeding at any time during a proceeding, so long the relevant 
parties are given an opportunity to comment and object. 17 U.S.C. 
801(b)(7)(A). The Judges may decline to adopt the agreement as a basis 
for statutory terms and rates for participants not party to the 
agreement if any participant objects and the Judges conclude that the 
agreement does not provide a reasonable basis for setting statutory 
terms or rates. Id. at 801(b)(7)(A).
    The Judges provided the requisite opportunity for comment and 
received GEO's opposition as well as the above-noted comments for and 
against the Settlement. Having considered these submissions in their 
entirety, the Judges find no persuasive legal or economic arguments 
that convince the Judges to reject the proposed settlement reached 
voluntarily between the Settling Parties.
    Only one participant in this proceeding, GEO, objected to the 
Settlement. As shown by the foregoing synopsis, however, GEO's 
objections did not come to the Judges in a vacuum. The statute requires 
publication of a settlement proposal and solicitation of comments from 
interested parties--parties who would be bound by the proposed rates 
and terms. Interested parties' comments are filed in the record of the 
proceeding and the Judges analyze those comments even though the Judges 
do not base rejection of a settlement solely on negative comments from 
non-participants.
    From the perspective of some independent songwriters and copyright 
owners, the proposed rates might seem inadequate. The Judges recognize 
that several commenters proposed alternative rates that they prefer, 
including alternative methods for inserting inflation adjustments. 
However, while the Judges may decline to adopt a settlement, the Judges 
are not empowered to modify the Settlement, such as by adding requested 
adjustments. The Settlement is what is before the Judges for 
consideration, not alternative rates or proposals for alternative 
procedures.\17\ The Judges specifically recognize that some comments 
take issue with existing aspects of participation in rate proceedings 
before the Judges.\18\ Additionally, the present settlement 
consideration process is not the forum to fully consider and address 
matters involving statements of account,\19\ an area which the U. S, 
Copyright Office and the Judges share an interest.\20\
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    \17\ Concerns about enforcement of infringement of licensable 
works or eligibility for the section 115 license are also outside 
the scope of the consideration of the Settlement.
    \18\ Certain of the procedural issues raised by commenters have 
been addressed in part through a recent response to an inquiry from 
the Senate Judiciary Committee. See, https://www.crb.gov/docs/CRB-Response-2022-11-25-Letter-to-Senators-FINAL.pdf.
    \19\ Absent specific briefing in relation to any requested 
clarification or correction, the Judges interpret the regulations to 
clarify that Plays in the denominator (in step 4) is limited to 
Covered Activity, as used in the regulatory definitions and 
references to the term as defined section 115(e)(7).
    \20\ The Judges specifically find that the application and 
allocation of the overtime adjustment and late fees as set forth in 
the Settlement is not unreasonable. The Judges further observe that 
allocation of late fees may be addressed through the contracts 
between songwriters and their publishers.
---------------------------------------------------------------------------

    While there may be dispute as to the extent to which the Copyright 
Owners as Settling Parties represent the copyright owner community 
overall, the Judges accept that the Copyright Owners have an interest 
in the vast majority of the uses of rights under section 115 for 
Subpart C & D Configurations. Furthermore, the Judges accept that the 
proposed rates and terms were negotiated on behalf of the vast majority 
of parties that historically have participated in section 115 
proceedings before the Judges. The Settling Parties clearly concluded 
that the rates and terms were acceptable to both sides. Furthermore, as 
addressed below, the negotiations occurred absent several of the 
aspects that led the Judges to refuse to adopt a separate proposed 
settlement.
    The facts and analysis that led the Judges to conclude that another 
proposed settlement in this proceeding did not provide a reasonable 
basis for setting statutory rates and terms are distinguishable from 
those surrounding the Settlement before them now. In the current 
consideration of the Settlement, the mechanical rates represent an 
increase from prior rates across significant steps of the rate setting 
formula, including the headline rate applicable to service revenue, the 
percentage of Total Content Costs, and fixed per subscriber elements 
within the Settlement, e.g. Royalty Floors. In other words, the rates 
do not remain unchanged. They are not frozen, despite the fact that 
they retain a rate structure, that some do not favor. The Judges 
clarify that they do not consider the structure of the Settlement to be 
unreasonable, and that they have found similar structure appropriate in 
other proceedings.
    While some songwriters or copyright owners may be confused by the 
royalties or statements of account, the price discriminatory structure 
and the associated levels of rates in settlement do not appear 
gratuitous, but rather designed, after negotiations, to establish a 
structure that may expand the revenues and royalties to the benefit of 
copyright owners and music services alike, while also protecting 
copyright owners from potential revenue diminution. This approach and 
the resulting rate setting formula is not unreasonable. Indeed, when 
the market

[[Page 80453]]

itself is complex, it is unsurprising that the regulatory provisions 
would resemble the complex terms in a commercial agreement negotiated 
in such a setting. For the Judges to demand simplicity in this context 
would be to sacrifice the specificity that an effectively competitive 
market requires. The Judges also observe that one of the benefits of a 
collective entity (the MLC in this case) is that it possesses the 
expertise and resources to identify and explain how royalties are 
computed and distributed.
    In the current consideration of the Settlement, the Judges ordered 
disclosure of relevant supplemental agreements. The Judges took 
appropriate steps to ensure that such agreements have been properly 
revealed to the Judges and to the public. This is an important 
distinction from the Judges' consideration a settlement where related 
agreements were hidden or opaque.\21\
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    \21\ As the Judges have noted, the submission of partial 
agreements, and related materials as restricted, has been a source 
of unfortunate delay in consideration of the proposed settlement of 
statutory royalty rates and terms for subpart C and D 
configurations.
---------------------------------------------------------------------------

    The issue of potential conflicts of interest remains to some 
degree, as some publishers represented by NMPA have cross ownership 
relationships with record labels, some of which have or had equity 
interests with music services. However, as the Judges have repeatedly 
observed, conflicts are inherent if not inevitable in the existing 
composition of certain negotiating parties. No party opposing the 
Settlement has presented persuasive evidence of misconduct or conduct 
that would sufficiently indicate that rates or terms are inconsistent 
with those that would be set in an effectively competitive market. The 
corporate relationships alone do not suffice as probative evidence of 
wrongdoing or of rates or terms that are inconsistent with the 
performance of an effectively competitive market. Indeed, the Judges 
have observed zealous advocacy throughout the proceeding, which has 
appeared to affect the settlement, thus mitigating the effect of any 
possible collusion such as suggested in the comments and the objection. 
The Judges, therefore, do not find that present alleged conflicts 
present sufficient reason to doubt the reasonableness of the settlement 
at issue as a basis for setting statutory rates and terms.
    The Judges do not conclude that the Settlement agreement, reached 
voluntarily between the Settling Parties, fails to provide a reasonable 
basis for setting statutory terms and rates for licensing nondramatic 
musical works to manufacture and distribute phonorecords. The entirety 
of the record before the Judges, including the arguments GEO and other 
commenters presented, is insufficient for the Judges to determine that 
the agreed rates and terms are unreasonable.
    In making this finding, the Judges are not indicating that 
arguments for differing approaches to address inflation in the 
Settlement are entirely without merit. However, the Judges find some of 
the proposals for cost of living adjustments advanced in the comments 
to be questionable. In short, the Judges do not find it unreasonable, 
in this case, for the Settlement to not include yearly adjustments for 
inflation.
    In making this finding, the Judges observe the broad increases 
within the Settlement, including the headline percentage rate 
applicable to Service Revenue, the percentage of Total Content Costs, 
and each of the fixed per subscriber elements. The Judges find that the 
structure and increases are a reasonable approach to providing an 
organic cost of living adjustment. The Judges also observe that 
agreements such as the Settlement are arrived upon in part to avoid 
costly and uncertain litigation, which would involve a number of 
disputed issues. Securing specific inflation adjustments is but one of 
several provisions that may be bargained for, and treatment of that 
issue is bound-up with the entirety of the parties' negotiated 
compromises. In this context, the Judges find no persuasive reason to 
determine that the absence of yearly inflation adjustments is 
unreasonable or should otherwise justify a rejection of the Settlement. 
The Judges also note that while the willing buyer willing seller 
standard was not expressly applied as it would be in a full proceeding, 
the operable rate standard exists as a relevant factor surrounding the 
Settlement.
    The Judges also reviewed the Settlement with regard to whether any 
portions would be contrary to provisions of the applicable license or 
otherwise contrary to the statute, pursuant to the Register's prior 
rulings. See, e.g., Review of Copyright Royalty Judges Determination, 
74 FR 4537, 4540 (Jan 26, 2009). Upon such review, the Judges see no 
basis to conclude that the Settlement is contrary to law. Therefore, 
the Judges adopt the proposed regulations that codify the 
Settlement.\22\
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    \22\ The Judges observe that GEO appears to have requested a 
rate setting for activity that may not be addressed in the 
Settlement, which he describes as an ``unlimited limited download.'' 
The Judges intend to request additional briefing from the 
Participants as to whether and how this proceeding may address such 
activity.
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    The Judges adopt the proposed rates and terms industry-wide for 
Subparts C and D Configurations.

List of Subjects in 37 CFR Part 385

    Copyright, Phonorecords, Recordings.

    For the reasons set forth in the preamble, the Copyright Royalty 
Judges amend 37 CFR part 385 as follows:

PART 385--RATES AND TERMS FOR USE OF NONDRAMATIC MUSICAL WORKS IN 
THE MAKING AND DISTRIBUTING OF PHYSICAL AND DIGITAL PHONORECORDS

0
1. The authority citation for part 385 continues to read as follows:

    Authority:  17 U.S.C. 115, 801(b)(1), 804(b)(4).


0
2. Revise subpart A to read as follows:

Subpart A--Regulations of General Application

Sec.
385.1 General.
385.2 Definitions.
385.3 Late payments.
385.4 Recordkeeping for promotional or free trial non-royalty-
bearing uses.


Sec.  385.1  General.

    (a) Scope. This part establishes rates and terms of royalty 
payments for the use of nondramatic musical works in making and 
distributing of physical and digital phonorecords in accordance with 
the provisions of 17 U.S.C. 115. This subpart contains regulations of 
general application to the making and distributing of phonorecords 
subject to the section 115 license.
    (b) Legal compliance. Licensees relying on the compulsory license 
detailed in 17 U.S.C. 115 shall comply with the requirements of that 
section, the rates and terms of this part, and any other applicable 
regulations. This part describes rates and terms for the compulsory 
license only.
    (c) Interpretation. This part is intended only to set rates and 
terms for situations in which the exclusive rights of a Copyright Owner 
are implicated and a compulsory license pursuant to 17 U.S.C. 115 is 
obtained. Neither this part nor the act of obtaining a license under 17 
U.S.C. 115 is intended to express or imply any conclusion as to the 
circumstances in which a user must obtain a compulsory license pursuant 
to 17 U.S.C. 115.
    (d) Relationship to voluntary agreements. The rates and terms of 
any license agreements entered into by Copyright Owners and Licensees

[[Page 80454]]

relating to use of musical works within the scope of those license 
agreements shall apply in lieu of the rates and terms of this part.


Sec.  385.2  Definitions.

    Unless otherwise specified, capitalized terms in this part shall 
have the same meaning given to them in 17 U.S.C. 115(e). For the 
purposes of this part, the following definitions apply:
    Accounting Period means the monthly period specified in 17 U.S.C. 
115(c)(2)(I) and in 17 U.S.C. 115(d)(4)(A)(i), and any related 
regulations, as applicable.
    Active Subscriber means an End User of a Bundled Subscription 
Offering who has made at least one Play during the Accounting Period.
    Affiliate means an entity controlling, controlled by, or under 
common control with another entity, except that an affiliate of a Sound 
Recording Company shall not include a Copyright Owner to the extent it 
is engaging in business as to musical works.
    Artificial Accounts are accounts that are disabled or terminated 
for having engaged in User Manipulation or other fraudulent activity 
and for which any subscription revenues are refunded or otherwise not 
received by the Service Provider.
    Bundle means a combination of a Subscription Offering providing 
Eligible Interactive Streams and/or Eligible Limited Downloads and one 
or more other products or services having more than token value, 
purchased by End Users in a single transaction (e.g., where End Users 
make a single payment without separate pricing for the Subscription 
Offering component).
    Bundled Subscription Offering means a Subscription Offering 
providing Eligible Interactive Streams and/or Eligible Limited 
Downloads included within a Bundle.
    Copyright Owner(s) are nondramatic musical works copyright owners 
who are entitled to royalty payments made under this part pursuant to 
the compulsory license under 17 U.S.C. 115.
    Digital Phonorecord Delivery has the same meaning as in 17 U.S.C. 
115(e)(10).
    Eligible Interactive Stream means a Stream that is an Interactive 
Stream as defined in 17 U.S.C. 115(e)(13).
    Eligible Limited Download means a Limited Download as defined in 17 
U.S.C. 115(e)(16) that is only accessible for listening for--
    (1) An amount of time not to exceed one month from the time of the 
transmission (unless the Licensee, in lieu of retransmitting the same 
sound recording as another Eligible Limited Download, separately, and 
upon specific request of the End User made through a live network 
connection, reauthorizes use for another time period not to exceed one 
month), or in the case of a subscription plan, a period of time 
following the end of the applicable subscription no longer than a 
subscription renewal period or three months, whichever is shorter; or
    (2) A number of times not to exceed 12 (unless the Licensee, in 
lieu of retransmitting the same sound recording as another Eligible 
Limited Download, separately, and upon specific request of the End User 
made through a live network connection, reauthorizes use of another 
series of 12 or fewer plays), or in the case of a subscription 
transmission, 12 times after the end of the applicable subscription.
    End User means each unique person that:
    (1) Pays a subscription fee for an Offering during the relevant 
Accounting Period; or
    (2) Makes at least one Play during the relevant Accounting Period.
    Family Plan means a discounted Subscription Offering to be shared 
by up to six members of the same family or household for a single 
subscription price.
    Free Trial Offering means a subscription to a Service Provider's 
transmissions of sound recordings embodying musical works when--
    (1) Neither the Service Provider, the Sound Recording Company, the 
Copyright Owner, nor any person or entity acting on behalf of or in 
lieu of any of them receives any monetary consideration for the 
Offering;
    (2) The usage does not exceed 45 days per subscriber per one-year 
period, which days may be nonconsecutive;
    (3) In connection with the Offering, the Service Provider complies 
with the recordkeeping requirements in Sec.  385.4 or superseding 
Copyright Office recordkeeping requirements;
    (4) The Free Trial Offering is made available to the End User free 
of any charge; and
    (5) The Service Provider offers the End User periodically during 
the trial an opportunity to subscribe to, and/or auto-renews the End 
User into, a non-Free Trial Offering of the Service Provider.
    GAAP means U.S. Generally Accepted Accounting Principles in effect 
at the relevant time, except that if the U.S. Securities and Exchange 
Commission permits or requires entities with securities that are 
publicly traded in the U.S. to employ International Financial Reporting 
Standards in lieu of Generally Accepted Accounting Principles, then 
that entity may employ International Financial Reporting Standards as 
``GAAP'' for purposes of this subpart.
    Licensee means any entity availing itself of the compulsory license 
under 17 U.S.C. 115 to use copyrighted musical works in the making or 
distributing of physical or digital phonorecords.
    Licensed Activity as the term is used in subparts C and D of this 
part, means Covered Activity, under voluntary or statutory license, in 
the form of Eligible Interactive Streams, Eligible Limited Downloads, 
and Restricted Downloads.
    Locker Service means an Offering providing digital access to sound 
recordings of musical works in the form of Eligible Interactive 
Streams, Permanent Downloads, Restricted Downloads or Ringtones where 
the Service Provider has reasonably determined that the End User has 
purchased or is otherwise in possession of the subject phonorecords of 
the applicable sound recording prior to the End User's first request to 
use the sound recording via the Locker Service. The term Locker Service 
does not mean any part of a Service Provider's products otherwise 
meeting this definition, but as to which the Service Provider has not 
obtained a section 115 license.
    Mixed Service Bundle means an Offering providing Licensed Activity 
consisting of Eligible Interactive Streams or Eligible Limited 
Downloads that meets all of the following criteria:
    (1) The Offering is made available to End Users only in combination 
(i.e., the Offering is not available on a standalone basis) with one or 
more products or services (including services subject to other 
subparts) of more than token value as part of one transaction for which 
End Users make a payment without receiving pricing for the Offering 
separate from the product(s) or service(s) with which it is made 
available.
    (2) The Offering is made available by a Service Provider that also 
offers End Users a separate, standalone Subscription Offering.
    (3) The Offering offers End Users less functionality relative to 
that separate, standalone Subscription Offering. Such lesser 
functionality may include, but is not limited to, limitations on the 
ability of End Users to choose to listen to specific sound recordings 
on request or a limited catalog of sound recordings.
    (4) Where an Offering could qualify or be considered as either a 
Bundled Subscription Offering or a Mixed Service Bundle, such Offering 
shall be deemed a Mixed Service Bundle for the purpose of calculating 
and paying royalties under subpart C of this part.

[[Page 80455]]

    Music Bundle means two or more of physical phonorecords, Permanent 
Downloads or Ringtones delivered as part of one transaction (e.g., 
download plus ringtone, CD plus downloads). In the case of Music 
Bundles containing one or more physical phonorecords, the Service 
Provider must sell the physical phonorecord component of the Music 
Bundle under a single catalog number, and the musical works embodied in 
the Digital Phonorecord Delivery configurations in the Music Bundle 
must be the same as, or a subset of, the musical works embodied in the 
physical phonorecords; provided that when the Music Bundle contains a 
set of Digital Phonorecord Deliveries sold by the same Sound Recording 
Company under substantially the same title as the physical phonorecord 
(e.g., a corresponding digital album), the Service Provider may include 
in the same bundle up to 5 sound recordings of musical works that are 
included in the stand-alone version of the set of digital phonorecord 
deliveries but not included on the physical phonorecord. In addition, 
the Service Provider must permanently part with possession of the 
physical phonorecord or phonorecords it sells as part of the Music 
Bundle. In the case of Music Bundles composed solely of digital 
phonorecord deliveries, the number of digital phonorecord deliveries in 
either configuration cannot exceed 20, and the musical works embodied 
in each configuration in the Music Bundle must be the same as, or a 
subset of, the musical works embodied in the configuration containing 
the most musical works.
    Offering means a Service Provider's engagement in Licensed Activity 
covered by subparts C and D of this part.
    Paid Locker Service means a Locker Service for which the End User 
pays a fee to the Service Provider.
    Performance Royalty means the license fee payable for the right to 
perform publicly musical works in any of the forms covered by subparts 
C and D this part.
    Permanent Download has the same meaning as in 17 U.S.C. 115(e)(24).
    Play means an Eligible Interactive Stream, or a play of an Eligible 
Limited Download, lasting 30 seconds or more and, if a track lasts in 
its entirety under 30 seconds, an Eligible Interactive Stream or a play 
of an Eligible Limited Download of the entire duration of the track. A 
Play excludes an Eligible Interactive Stream or a play of an Eligible 
Limited Download caused by User Manipulation.
    Promotional Offering means a digital transmission of a sound 
recording, in the form of an Eligible Interactive Stream or an Eligible 
Limited Download, embodying a musical work, the primary purpose of 
which is to promote the sale or other paid use of that sound recording 
or to promote the artist performing on that sound recording and not to 
promote or suggest promotion or endorsement of any other good or 
service and
    (1) A Sound Recording Company is lawfully distributing the sound 
recording through established retail channels or, if the sound 
recording is not yet released, the Sound Recording Company has a good 
faith intention to lawfully distribute the sound recording or a 
different version of the sound recording embodying the same musical 
work;
    (2) The Service Provider is in compliance with the recordkeeping 
requirements of Sec.  385.4 or superseding Copyright Office 
recordkeeping requirements;
    (3) For Eligible Interactive Streams of segments of sound 
recordings not exceeding 90 seconds, the Sound Recording Company 
delivers or authorizes delivery of the segments for promotional 
purposes and neither the Service Provider nor the Sound Recording 
Company creates or uses a segment of a sound recording in violation of 
17 U.S.C. 106(2) or 115(a)(2);
    (4) The Promotional Offering is made available to an End User free 
of any charge; and
    (5) The Service Provider provides to the End User at the same time 
as the Promotional Offering Stream an opportunity to purchase the sound 
recording or the Service Provider periodically offers End Users the 
opportunity to subscribe to a paid Offering of the Service Provider.
    Purchased Content Locker Service means a Locker Service made 
available to End User purchasers of Permanent Downloads, Ringtones, or 
physical phonorecords at no incremental charge above the otherwise 
applicable purchase price of the Permanent Downloads, Ringtones, or 
physical phonorecords acquired from a qualifying seller. With a 
Purchased Content Locker Service, an End User may receive one or more 
additional phonorecords of the purchased sound recordings of musical 
works in the form of Permanent Downloads or Ringtones at the time of 
purchase, or subsequently have digital access to the purchased sound 
recordings of musical works in the form of Eligible Interactive 
Streams, additional Permanent Downloads, Restricted Downloads, or 
Ringtones.
    (1) A qualifying seller for purposes of this definition is the 
entity operating the Service Provider, including Affiliates, 
predecessors, or successors in interest, or--
    (2) In the case of Permanent Downloads or Ringtones, a seller 
having a legitimate connection to the locker service provider pursuant 
to one or more written agreements (including that the Purchased Content 
Locker Service and Permanent Downloads or Ringtones are offered through 
the same third party); or
    (3) In the case of physical phonorecords:
    (i) The seller of the physical phonorecord has an agreement with 
the Purchased Content Locker Service provider establishing an 
integrated offer that creates a consumer experience commensurate with 
having the same Service Provider both sell the physical phonorecord and 
offer the integrated locker service; or
    (ii) The Service Provider has an agreement with the entity offering 
the Purchased Content Locker Service establishing an integrated offer 
that creates a consumer experience commensurate with having the same 
Service Provider both sell the physical phonorecord and offer the 
integrated locker service.
    Relevant Page means an electronic display (for example, a web page 
or screen) from which a Service Provider's Offering consisting of 
Eligible Interactive Streams or Eligible Limited Downloads is directly 
available to End Users, but only when the Offering and content directly 
relating to the Offering (e.g., an image of the artist, information 
about the artist or album, reviews, credits, and music player controls) 
comprises 75% or more of the space on that display, excluding any space 
occupied by advertising. An Offering is directly available to End Users 
from a page if End Users can receive sound recordings of musical works 
(in most cases this will be the page on which the Eligible Limited 
Download or Eligible Interactive Stream takes place).
    Restricted Download means a Digital Phonorecord Delivery in a form 
that cannot be retained and replayed on a permanent basis. The term 
Restricted Download includes an Eligible Limited Download.
    Ringtone means a phonorecord of a part of a musical work 
distributed as a Digital Phonorecord Delivery in a format to be made 
resident on a telecommunications device for use to announce the 
reception of an incoming telephone call or other communication or 
message or to alert the receiver to the fact that there is a 
communication or message.

[[Page 80456]]

    Service Provider means that entity governed by subparts C and D of 
this part, which might or might not be the Licensee, that with respect 
to the section 115 license.
    (1) Contracts with or has a direct relationship with End Users or 
otherwise controls the content made available to End Users;
    (2) Is able to report fully on Service Provider Revenue from the 
provision of musical works embodied in phonorecords to the public, and 
to the extent applicable, verify Service Provider Revenue through an 
audit; and
    (3) Is able to report fully on its usage of musical works, or 
procure such reporting and, to the extent applicable, verify usage 
through an audit.
    Service Provider Revenue. (1) Subject to paragraphs (2) through (5) 
of this definition and subject to GAAP, Service Provider Revenue shall 
mean, for each Offering subject to subpart C of this part:
    (i) All revenue from End Users recognized by a Service Provider for 
the provision of the Offering;
    (ii) All revenue recognized by a Service Provider by way of 
sponsorship and commissions as a result of the inclusion of third-party 
``in-stream'' or ``in-download'' advertising as part of the Offering, 
i.e., advertising placed immediately at the start or end of, or during 
the actual delivery of, a musical work, by way of Eligible Interactive 
Streams or Eligible Limited Downloads; and
    (iii) All revenue recognized by the Service Provider, including by 
way of sponsorship and commissions, as a result of the placement of 
third-party advertising on a Relevant Page of the Service Provider or 
on any page that directly follows a Relevant Page leading up to and 
including the Eligible Limited Download or Eligible Interactive Stream 
of a musical work; provided that, in case more than one Offering is 
available to End Users from a Relevant Page, any advertising revenue 
shall be allocated between or among the Service Providers on the basis 
of the relative amounts of the page they occupy.
    (2) Service Provider Revenue shall:
    (i) Include revenue recognized by the Service Provider, or by any 
associate, Affiliate, agent, or representative of the Service Provider 
in lieu of its being recognized by the Service Provider; and
    (ii) Include the value of any barter or other nonmonetary 
consideration; and
    (iii) Except as expressly detailed in this part, not be subject to 
any other deduction or set-off other than refunds to End Users for 
Offerings that the End Users were unable to use because of technical 
faults in the Offering or other bona fide refunds or credits issued to 
End Users in the ordinary course of business.
    (3) Service Provider Revenue shall exclude revenue derived by the 
Service Provider solely in connection with activities other than 
Offering(s), whereas advertising or sponsorship revenue derived in 
connection with any Offering(s) shall be treated as provided in 
paragraphs (1), (2) and (4) of this definition.
    (4) For purposes of paragraph (1) of this definition, advertising 
or sponsorship revenue shall be reduced by the actual cost of obtaining 
that revenue, not to exceed 15%.
    (5) In instances in which a Service Provider provides a Bundled 
Subscription Offering to End Users, the revenue from End Users deemed 
to be recognized by the Service Provider for the Offering for the 
purpose of paragraph (1) of this definition of Service Provider Revenue 
shall be as follows:
    (i) For Bundled Subscription Offerings where both (a) each 
component of the Bundle is a product or service of the Service Provider 
(including Affiliates) and (b) the Service Provider (including 
Affiliates) makes the Bundle available to End Users directly, then the 
revenue from End Users deemed to be recognized by the Service Provider 
for the purpose of paragraph (1) of this definition shall be the 
aggregate of the retail price paid for the Bundle (i.e., all components 
for one retail price) multiplied by a fraction where the numerator is 
the standalone retail price of the Subscription Offering component in 
the Bundle and the denominator is the sum of the standalone retail 
prices of each of the components in the Bundle (e.g., if a Service 
Provider sells the Subscription Offering component on a standalone 
basis for $10/month and a separate product and/or service on a 
standalone basis for $5/month, then the fraction shall be $10 divided 
by $15, i.e., \2/3\, resulting in Service Provider Revenue of $8,000 if 
the aggregate of the retail price paid for the Bundle is $12,000).
    (ii) For Bundled Subscription Offerings where either one or more 
components of the Bundle are not products or services of the Service 
Provider (including Affiliates) or the Service Provider (including 
Affiliates) does not make the Bundle available to End Users directly, 
then the revenue from End Users deemed to be recognized by the Service 
Provider for the purpose of paragraph (1) of this definition shall be 
the revenue recognized by the Service Provider from the Bundle 
multiplied by a fraction where the numerator is the standalone retail 
price of the Subscription Offering component in the Bundle and the 
denominator is the sum of the standalone retail prices of each of the 
components of the Bundle. Notwithstanding the preceding sentence, where 
the Service Provider does not recognize revenue for one or more 
components of the Bundle, then the standalone price(s) of the 
component(s) for which revenue is not recognized shall not be included 
in the calculation of the denominator of the fraction described in this 
sub-paragraph (e.g., where a Bundle of three services, each with a 
standalone price of $20/month, sells for $50/month, and the Service 
Provider recognizes $30,000 of revenue from the provision of only two 
of those services, one of which is a Subscription Offering, then the 
fraction shall be $20 divided by $40, i.e., \1/2\, resulting in Service 
Provider Revenue of $15,000).
    (iii) For the calculations in paragraphs (5)(i) and (ii) of this 
definition, in the event that there is no standalone published price 
for a component of the Bundle, then the Service Provider shall use the 
average standalone published price for End Users for the most closely 
comparable product or service in the U.S. or, if more than one 
comparable exists, the average of standalone prices for comparables. If 
no reasonably comparable product or service exists in the U.S., then 
the Service Provider may use another good faith, reasonable measure of 
the market value of the component.
    Sound Recording Company means a person or entity that:
    (1) Is a copyright owner of a sound recording embodying a musical 
work;
    (2) In the case of a sound recording of a musical work fixed before 
February 15, 1972, has rights to the sound recording, under chapter 14 
of title 17, United States Code, that are equivalent to the rights of a 
copyright owner of a sound recording of a musical work under title 17, 
United States Code;
    (3) Is an exclusive Licensee of the rights to reproduce and 
distribute a sound recording of a musical work; or
    (4) Performs the functions of marketing and authorizing the 
distribution of a sound recording of a musical work under its own 
label, under the authority of a person identified in paragraph (1) 
through (3).
    Standalone Limited Offering means a Subscription Offering providing 
Eligible Interactive Streams or Eligible Limited Downloads for which--
    (1) An End User cannot choose to listen to a particular sound 
recording (i.e., the Service Provider does not provide Eligible 
Interactive Streams of

[[Page 80457]]

individual recordings that are on-demand, and Eligible Limited 
Downloads are rendered only as part of programs rather than as 
individual recordings that are on-demand); or
    (2) The particular sound recordings available to the End User over 
a period of time are substantially limited relative to Service 
Providers in the marketplace providing access to a comprehensive 
catalog of recordings (e.g., a product limited to a particular genre or 
permitting Eligible Interactive Streams only from a monthly playlist 
consisting of a limited set of recordings).
    Standalone Non-Portable Subscription Offering--Streaming Only means 
a Subscription Offering through which an End User can listen to sound 
recordings only in the form of Eligible Interactive Streams and only 
from a non-portable device to which those Eligible Interactive Streams 
are originally transmitted while the device has a live network 
connection.
    Standalone Non-Portable Subscription Offering--Mixed means a 
Subscription Offering through which an End User can listen to sound 
recordings either in the form of Eligible Interactive Streams or 
Eligible Limited Downloads but only from a non-portable device to which 
those Eligible Interactive Streams or Eligible Limited Downloads are 
originally transmitted.
    Standalone Portable Subscription Offering means a Subscription 
Offering through which an End User can listen to sound recordings in 
the form of Eligible Interactive Streams or Eligible Limited Downloads 
from a portable device.
    Stream means the digital transmission of a sound recording of a 
musical work to an End User--
    (1) To allow the End User to listen to the sound recording, while 
maintaining a live network connection to the transmitting service, 
substantially at the time of transmission, except to the extent that 
the sound recording remains accessible for future listening from a 
Streaming Cache Reproduction;
    (2) Using technology that is designed such that the sound recording 
does not remain accessible for future listening, except to the extent 
that the sound recording remains accessible for future listening from a 
Streaming Cache Reproduction; and
    (3) That is subject to licensing as a public performance of the 
musical work.
    Streaming Cache Reproduction means a reproduction of a sound 
recording embodying a musical work made on a computer or other 
receiving device by a Service Provider solely for the purpose of 
permitting an End User who has previously received a Stream of that 
sound recording to play the sound recording again from local storage on 
the computer or other device rather than by means of a transmission; 
provided that the End User is only able to do so while maintaining a 
live network connection to the Service Provider, and the reproduction 
is encrypted or otherwise protected consistent with prevailing industry 
standards to prevent it from being played in any other manner or on any 
device other than the computer or other device on which it was 
originally made.
    Student Plan means a discounted Subscription Offering available on 
a limited basis to students.
    Subscription Offering means an Offering for which End Users are 
required to pay a fee to have access to the Offering for defined 
subscription periods of 3 years or less (in contrast to, for example, a 
service where the basic charge to users is a payment per download or 
per play), whether the End User makes payment for access to the 
Offering on a standalone basis or as part of a Bundle.
    TCC means the total amount expensed by a Service Provider or any of 
its Affiliates in accordance with GAAP for rights to make Eligible 
Interactive Streams or Eligible Limited Downloads of a musical work 
embodied in a sound recording through the Service Provider for the 
Accounting Period, which amount shall equal the Applicable 
Consideration for those rights at the time the Applicable Consideration 
is properly recognized as an expense under GAAP. As used in this 
definition, ``Applicable Consideration'' means anything of value given 
for the identified rights to undertake the Licensed Activity, 
including, without limitation, ownership equity, monetary advances, 
barter or any other monetary and/or nonmonetary consideration, whether 
that consideration is conveyed via a single agreement, multiple 
agreements and/or agreements that do not themselves authorize the 
Licensed Activity but nevertheless provide consideration for the 
identified rights to undertake the Licensed Activity, and including any 
value given to an Affiliate of a Sound Recording Company for the rights 
to undertake the Licensed Activity. Value given to a Copyright Owner of 
musical works that is controlling, controlled by, or under common 
control with a Sound Recording Company for rights to undertake the 
Licensed Activity shall not be considered value given to the Sound 
Recording Company. Notwithstanding the foregoing, Applicable 
Consideration shall not include in-kind promotional consideration given 
to a Sound Recording Company (or Affiliate thereof) that is used to 
promote the sale or paid use of sound recordings embodying musical 
works or the paid use of music services through which sound recordings 
embodying musical works are available where the in-kind promotional 
consideration is given in connection with a use that qualifies for 
licensing under 17 U.S.C. 115.
    User Manipulation means any behavior that artificially distorts the 
number of Plays, including, but not limited to, the use of manual 
(e.g., click farms) or automated (e.g., bots) means.


Sec.  385.3  Late payments.

    A Licensee shall pay a late fee of 1.5% per month, or the highest 
lawful rate, whichever is lower, for any payment owed to a Copyright 
Owner and remaining unpaid after the due date established in 17 U.S.C. 
115(c)(2)(I) or 17 U.S.C. 115(d)(4)(A)(i), as applicable and detailed 
in part 210 of this title. Late fees shall accrue from the due date 
until the Copyright Owner receives payment.


Sec.  385.4  Recordkeeping for promotional or free trial non-royalty-
bearing uses.

    (a) Effect of Copyright Office recordkeeping regulations. Unless 
and until the Copyright Office promulgates superseding regulations 
concerning recordkeeping for promotional or free trial non-royalty-
bearing uses subject to this part, the recordkeeping provisions in this 
section shall apply to Service Providers.
    (b) General. A Service Provider transmitting a sound recording 
embodying a musical work subject to section 115 and subparts C and D of 
this part and claiming a Promotional Offering or Free Trial Offering 
zero royalty rate shall keep complete and accurate contemporaneous 
written records of making or authorizing Eligible Interactive Streams 
or Eligible Limited Downloads, including the sound recordings and 
musical works involved, the artists, the release dates of the sound 
recordings, a brief statement of the promotional activities authorized, 
the identity of the Offering or Offerings for which the zero-rate is 
authorized (including the internet address if applicable), and the 
beginning and end date of each zero rate Offering.
    (c) Retention of records. A Service Provider claiming zero rates 
shall maintain the records required by this section for no less time 
than the Service Provider maintains records of royalty-bearing uses 
involving the same types of Offerings in the ordinary course of 
business, but in no event for fewer than

[[Page 80458]]

five years from the conclusion of the zero rate Offerings to which they 
pertain.
    (d) Availability of records. If the Mechanical Licensing Collective 
requests information concerning zero rate Offerings, the Service 
Provider shall respond to the request within an agreed, reasonable 
time.

0
3. Revise subpart C to read as follows:

Subpart C--Eligible Interactive Streaming, Eligible Limited 
Downloads, Standalone Limited Offerings, Mixed Service Bundles, 
Bundled Subscription Offerings, Locker Services, and Other Delivery 
Configurations

Sec.
385.20 Scope.
385.21 Royalty rates and calculations.


Sec.  385.20  Scope.

    This subpart establishes rates and terms of royalty payments for 
Eligible Interactive Streams and Eligible Limited Downloads of musical 
works, and other reproductions or distributions of musical works 
through Standalone Limited Offerings, Mixed Service Bundles, Bundled 
Subscription Offerings, Paid Locker Services, and Purchased Content 
Locker Services provided through subscription and nonsubscription 
digital music Service Providers in accordance with the provisions of 17 
U.S.C. 115, exclusive of Offerings subject to subpart D of this part.


Sec.  385.21  Royalty rates and calculations.

    (a) Applicable royalty. Licensees that engage in Licensed Activity 
covered by this subpart pursuant to 17 U.S.C. 115 shall pay royalties 
therefor that are calculated as provided in this section.
    (b) Rate calculation. Royalty payments for Licensed Activity in 
this subpart shall be calculated as provided in this paragraph (b). If 
a Service Provider makes available different Offerings, royalties must 
be calculated separately with respect to each Offering taking into 
consideration Service Provider Revenue, TCC, subscribers, Plays, 
expenses, and Performance Royalties associated with each Offering. A 
Service Provider shall not be required to subject the same portion of 
Service Provider Revenue, TCC, subscribers, Plays, expenses, or 
Performance Royalties to the calculation of royalties for more than one 
Offering in an Accounting Period.
    (1) Step 1: Calculate the all-in royalty for the Offering. For each 
Accounting Period, the all-in royalty for each Offering in this subpart 
with the exception of Mixed Service Bundles shall be the greater of:
    (i) The applicable percent of Service Provider Revenue, as set 
forth in Table 1 to this paragraph (b)(1), and
    (ii) The result of the TCC Prong Calculation for the respective 
type of Offering as set forth in Table 2 to this paragraph (b)(1). For 
Mixed Service Bundles, the all-in royalty shall be the result of the 
TCC Prong Calculation as set forth in Table 2.

                                           Table 1 to Paragraph (b)(1)
----------------------------------------------------------------------------------------------------------------
                      Royalty year:                           2023       2024       2025       2026       2027
----------------------------------------------------------------------------------------------------------------
Percent of Service Provider Revenue......................       15.1       15.2      15.25       15.3      15.35
----------------------------------------------------------------------------------------------------------------


                       Table 2 to Paragraph (b)(1)
------------------------------------------------------------------------
            Type of offering                  TCC prong calculation
------------------------------------------------------------------------
Standalone Non-Portable Subscription     The lesser of (i) 26.2% of TCC
 Offering--Streaming Only.                for the Accounting Period or
                                          (ii) the aggregate amount of
                                          60 cents per subscriber for
                                          the Accounting Period.
Standalone Non-Portable Subscription     The lesser of (i) 26.2% of TCC
 Offering--Mixed.                         for the Accounting Period or
                                          (ii) the aggregate amount of
                                          60 cents per subscriber for
                                          the Accounting Period.
Standalone Portable Subscription         The lesser of (i) 26.2% of TCC
 Offering.                                for the Accounting Period or
                                          (ii) the aggregate amount of
                                          $1.10 per subscriber for the
                                          Accounting Period.
Free nonsubscription/ad-supported        26.2% of TCC for the Accounting
 services free of any charge to the End   Period.
 User.
Bundled Subscription Offering..........  24.5% of TCC for the Accounting
                                          Period.
Mixed Service Bundle...................  26.2% of TCC for the Accounting
                                          Period.
Purchased Content Locker Service.......  26.2% of TCC for the Accounting
                                          Period.
Standalone Limited Offering............  26.2% of TCC for the Accounting
                                          Period.
Paid Locker Service....................  26.2% of TCC for the Accounting
                                          Period.
------------------------------------------------------------------------

    (2) Step 2: Subtract applicable Performance Royalties. From the 
amount determined in step 1 in paragraph (b)(1) of this section, for 
each Offering of the Service Provider, subtract the total amount of 
Performance Royalties that the Service Provider has expensed or will 
expense pursuant to public performance licenses in connection with uses 
of musical works through that Offering during the Accounting Period 
that constitute Licensed Activity. Although this amount may be the 
total of the Service Provider's payments for that Offering for the 
Accounting Period, it will be less than the total of the performance 
royalties if the Service Provider is also engaging in public 
performance of musical works that does not constitute Licensed 
Activity. In the case in which the Service Provider is also engaging in 
the public performance of musical works that does not constitute 
Licensed Activity, the amount to be subtracted for Performance 
Royalties shall be the amount allocable to Licensed Activity uses 
through the relevant Offering as determined in relation to all uses of 
musical works for which the Service Provider pays performance royalties 
for the Accounting Period. The Service Provider shall make this 
allocation on the basis of Plays of musical works, provided that if the 
Service Provider is not capable of tracking Play information, including 
because of bona fide limitations of the available technology for 
Offerings of that nature or of devices useable with the Offering, the 
allocation may instead be accomplished in a manner consistent with the 
methodology used for making royalty payment allocations for the use of 
individual sound recordings, and

[[Page 80459]]

further provided that, if the Service Provider is also not capable of 
utilizing a manner consistent with a methodology used for making 
royalty payment allocations for the use of individual sound recordings, 
the Service Provider may use an alternative, good faith methodology 
that is reasonable, identifiable, and implemented consistently.
    (3) Step 3: Determine the payable royalty pool. The payable royalty 
pool is the amount payable for the reproduction and distribution of all 
musical works used by the Service Provider by virtue of its Licensed 
Activity for a particular Offering during the Accounting Period. This 
amount is the greater of:
    (i) The result determined in step 2 in paragraph (b)(2) of this 
section; and
    (ii) The royalty floor (if any) resulting from the calculations 
described in paragraph (d) of this section.
    (4) Step 4: Calculate the per-work royalty allocation. This is the 
amount payable for the reproduction and distribution of each musical 
work used by the Service Provider by virtue of its Licensed Activity 
through a particular Offering during the Accounting Period. To 
determine this amount, the result determined in step 3 in paragraph 
(b)(3) of this section must be allocated to each musical work used 
through the Offering. The allocation shall be accomplished by the 
Mechanical Licensing Collective by dividing the payable royalty pool 
determined in step 3 for the Offering by the total number of Plays of 
all musical works through the Offering during the Accounting Period 
(other than Plays subject to subpart D of this part) to yield a per-
Play allocation, and multiplying that result by the number of Plays of 
each musical work (other than Plays subject to subpart D of this part) 
through the Offering during the Accounting Period. For purposes of 
determining the per-work royalty allocation in all calculations under 
step 4 in this paragraph (b)(4) only (i.e., after the payable royalty 
pool has been determined), for sound recordings of musical works with a 
playing time of over 5 minutes, each Play shall be counted as provided 
in paragraph (c) of this section. Notwithstanding the foregoing, if the 
Service Provider is not capable of tracking Play information because of 
bona fide limitations of the available technology for Offerings of that 
nature or of devices useable with the Offering, the per-work royalty 
allocation may instead be accomplished in a manner consistent with the 
methodology used for making royalty payment allocations for the use of 
individual sound recordings.
    (c) Overtime adjustment. For purposes of the calculations in step 4 
in paragraph (b)(4) of this section only, for sound recordings of 
musical works with a playing time of over 5 minutes, adjust the number 
of Plays as follows.
    (1) 5:01 to 6:00 minutes--Each Play = 1.2 Plays.
    (2) 6:01 to 7:00 minutes--Each Play = 1.4 Plays.
    (3) 7:01 to 8:00 minutes--Each Play = 1.6 Plays.
    (4) 8:01 to 9:00 minutes--Each Play = 1.8 Plays.
    (5) 9:01 to 10:00 minutes--EachPlay = 2.0 Plays.
    (6) For playing times of greater than 10 minutes, continue to add 
0.2 Plays for each additional minute or fraction thereof.
    (d) Royalty floors for specific types of Offerings. The following 
royalty floors for use in step 3 in paragraph (b)(3) of this section 
shall apply to the respective types of Offerings:
    (1) Standalone non-portable Subscription Offerings--streaming only. 
Except as provided in paragraphs (d)(4) and (6) of this section with 
respect to Standalone Limited Offerings, in the case of a Subscription 
Offering through which an End User can listen to sound recordings only 
in the form of Eligible Interactive Streams and only from a non-
portable device to which those Eligible Interactive Streams are 
originally transmitted while the device has a live network connection, 
the royalty floor for use in step 3 in paragraph (b)(3) of this section 
is the aggregate amount of 18 cents per subscriber per Accounting 
Period.
    (2) Standalone non-portable Subscription Offerings--mixed. Except 
as provided in paragraphs (d)(4) and (6) of this section with respect 
to Standalone Limited Offerings, in the case of a Subscription Offering 
through which an End User can listen to sound recordings either in the 
form of Eligible Interactive Streams or Eligible Limited Downloads but 
only from a non-portable device to which those Eligible Interactive 
Streams or Eligible Limited Downloads are originally transmitted, the 
royalty floor for use in step 3 in paragraph (b)(3) of this section is 
the aggregate amount of 36 cents per subscriber per Accounting Period.
    (3) Standalone portable Subscription Offerings. Except as provided 
in paragraphs (d)(4) and (6) of this section with respect to Standalone 
Limited Offerings, in the case of a Subscription Offering through which 
an End User can listen to sound recordings in the form of Eligible 
Interactive Streams or Eligible Limited Downloads from a portable 
device, the royalty floor for use in step 3 in paragraph (b)(3) of this 
section is the aggregate amount of 60 cents per subscriber per 
Accounting Period.
    (4) Bundled Subscription Offerings. In the case of a Bundled 
Subscription Offering, the royalty floor for use in step 3 in paragraph 
(b)(3) of this section is the aggregate amount of 33 cents per 
Accounting Period for each Active Subscriber. Notwithstanding the 
foregoing, solely where the Licensed Activity provided as part of a 
Bundled Subscription Offering would qualify as a Standalone Limited 
Offering if offered on a standalone basis, the royalty floor for use in 
step 3 in paragraph (b)(3) of this section is the aggregate amount of 
25 cents per Accounting Period for each Active Subscriber.
    (5) Mixed Service Bundles. In the case of a Mixed Service Bundle, 
the royalty floor for use in step 3 in paragraph (b)(3) of this section 
is the aggregate amount of 25 cents per Accounting Period for each 
Active Subscriber.
    (6) Other Offerings. A Standalone Limited Offering, a Paid Locker 
Service, a Purchased Content Locker Service, and a free 
nonsubscription/ad-supported service free of any charge to the End User 
shall not be subject to a royalty floor in step 3 in paragraph (b)(3) 
of this section.
    (e) Computation of per-subscriber rates and royalty floors. For 
purposes of this section, to determine the per-subscriber rates in step 
1 in paragraph (b)(1) of this section and the royalty floors in step 3 
in paragraph (b)(3) of this section, as applicable to any particular 
Offering, the total number of subscribers for the Accounting Period 
shall be calculated by taking all End Users who were subscribers for a 
complete Accounting Period, prorating in the case of End Users who were 
subscribers for only part of an Accounting Period (such proration may 
take into account the subscriber's billing period), and deducting on a 
prorated basis for End Users covered by an Offering subject to subpart 
D of this part, except in the case of a Bundled Subscription Offering, 
subscribers shall be determined with respect to Active Subscribers. The 
product of the total number of subscribers for the Accounting Period 
and the specified number of cents per subscriber (or Active Subscriber, 
as the case may be) shall be used as the subscriber-based components of 
the royalty calculation for the Accounting Period. A Family Plan 
subscription shall be treated as 1.75 subscribers per Accounting 
Period, prorated in the case of a Family Plan subscription in effect 
for only part of an Accounting Period. A Student Plan subscription 
shall be treated as 0.5

[[Page 80460]]

subscribers per Accounting Period, prorated in the case of a Student 
Plan subscription in effect for only part of an Accounting Period. A 
Bundled Subscription Offering containing a Family Plan with one or more 
Active Subscriber(s) shall be treated as having 1.75 Active 
Subscribers. A Bundled Subscription Offering containing a Student Plan 
with an Active Subscriber shall be treated as having 0.5 Active 
Subscribers. For the purposes of calculating per-subscriber rates and 
royalty floors under this section, Artificial Accounts shall not be 
counted as subscribers, Active Subscribers, or End Users.

0
4. Revise subpart D to read as follows:

Subpart D--Promotional Offerings, Free Trial Offerings and Certain 
Purchased Content Locker Services

Sec.
385.30 Scope.
385.31 Royalty rates.


Sec.  385.30  Scope.

    This subpart establishes rates and terms of royalty payments for 
Promotional Offerings, Free Trial Offerings, and certain Purchased 
Content Locker Services provided by subscription and nonsubscription 
digital music Service Providers in accordance with the provisions of 17 
U.S.C. 115.


Sec.  385.31  Royalty rates.

    (a) Promotional Offerings. For Promotional Offerings of audio-only 
Eligible Interactive Streams and Eligible Limited Downloads of sound 
recordings embodying musical works that the Sound Recording Company 
authorizes royalty-free to the Service Provider, the royalty rate is 
zero.
    (b) Free Trial Offerings. For Free Trial Offerings, the royalty 
rate is zero.
    (c) Certain Purchased Content Locker Services. For every Purchased 
Content Locker Service for which the Service Provider receives no 
monetary consideration, the royalty rate is zero.

David P. Shaw,
Chief Copyright Royalty Judge.
David R. Strickler,
Copyright Royalty Judge.
Steve Ruwe,
Copyright Royalty Judge.

    Approved by:
Dr. Carla D. Hayden,
Librarian of Congress.
[FR Doc. 2022-28316 Filed 12-29-22; 8:45 am]
BILLING CODE 1410-72-P

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